Veeco Instruments Inc.
2012 Annual Report on Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 0-16244
.
VEECO INSTRUMENTS INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
11-2989601
(I.R.S. Employer
Identification No.)
Terminal Drive
Plainview, New York
(Address of Principal Executive Offices)
11803
(Zip Code)
Registrant’s telephone number, including area code (516) 677-0200
Website: www.veeco.com
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.01 per share
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files.) Yes No Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes No Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by
references in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ and ‘‘smaller reporting
company’’ in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer Non-accelerated filer (Do not check if a
smaller reporting company)
Smaller reporting company Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes No
The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing price of the
common stock on June 28, 2013 as reported on The Nasdaq National Market, was $1,376,219,104. Shares of common stock
held by each officer and director and by each person who owns 10% or more of the outstanding common stock have been
excluded from this computation in that such persons may be deemed to be affiliates. This determination of affiliate status is
not necessarily a conclusive determination for other purposes.
39,246,279 shares of common stock were outstanding as of the close of business on October 24, 2013.
DOCUMENTS INCORPORATED BY REFERENCE
Safe Harbor Statement
This annual report on Form 10-K (the ‘‘Report’’) contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Discussions containing such forward-looking statements may be
found in Part I. Items 1, 3, 7 and 7A hereof, as well as within this Report generally. In addition, when
used in this Report, the words ‘‘believes,’’ ‘‘anticipates,’’ ‘‘expects,’’ ‘‘estimates,’’ ‘‘plans,’’ ‘‘intends’’,
‘‘will’’ and similar expressions are intended to identify forward-looking statements. All forward-looking
statements are subject to a number of risks and uncertainties that could cause actual results to differ
materially from projected results. These risks and uncertainties include, without limitation, the
following:
• Our operating results have been, and may continue to be, adversely affected by unfavorable market
conditions;
• Timing of market adoption of light emitting diode (‘‘LED’’) technology for general lighting is
uncertain;
• Our failure to successfully manage our outsourcing activities or failure of our outsourcing partners to
perform as anticipated could adversely affect our results of operations and our ability to adapt to
fluctuating order volumes;
• The further reduction or elimination of foreign government subsidies and economic incentives may
adversely affect the future order rate for our metal organic chemical vapor deposition (‘‘MOCVD’’)
equipment;
• Our operating results have been, and may continue to be, adversely affected by tightening credit
markets;
• Our backlog is subject to customer cancellation or modification and such cancellation could result in
decreased sales and increased provisions for excess and obsolete inventory and/or liabilities to our
suppliers for products no longer needed;
• Our failure to estimate customer demand accurately could result in excess or obsolete inventory
and/or liabilities to our suppliers for products no longer needed, while manufacturing interruptions or
delays could affect our ability to meet customer demand;
• The cyclicality of the industries we serve directly affects our business;
• We rely on a limited number of suppliers, some of whom are our sole source for particular
components;
• Our sales to LED and data storage manufacturers are highly dependent on these manufacturers’
sales for consumer electronics applications, which can experience significant volatility due to seasonal
and other factors, which could materially adversely impact our future results of operations;
• We are exposed to the risks of operating a global business, including the need to obtain export
licenses for certain of our shipments and political risks in the countries we operate;
• We may be exposed to liabilities under the Foreign Corrupt Practices Act and any determination that
we violated these or similar laws could have a material adverse effect on our business;
• The timing of our orders, shipments, and revenue recognition may cause our quarterly operating
results to fluctuate significantly;
• We operate in industries characterized by rapid technological change;
• We face significant competition;
2
• We depend on a limited number of customers, located primarily in a limited number of regions, that
operate in highly concentrated industries;
• Our sales cycle is long and unpredictable;
• Our material weaknesses in our internal control which have impeded, and may continue to impede,
our ability to file timely and accurate periodic reports may cause us to incur significant additional
costs and may continue to affect our stock price;
• The price of our common shares may be volatile and could decline significantly;
• Our inability to attract, retain, and motivate key employees could have a material adverse effect on
our business;
• We are subject to foreign currency exchange risks;
• The enforcement and protection of our intellectual property rights may be expensive and could divert
our limited resources;
• We may be subject to claims of intellectual property infringement by others;
• If we are subject to cyber-attacks we could incur substantial costs and, if such attacks are successful,
could result in significant liabilities, reputational harm and disruption of our operations;
• Our acquisition strategy subjects us to risks associated with evaluating and pursuing these
opportunities and integrating these businesses;
• We may be required to take additional impairment charges for goodwill and indefinite-lived
intangible assets or definite-lived intangible and long-lived assets;
• Changes in accounting pronouncements or taxation rules or practices may adversely affect our
financial results;
• We are subject to internal control evaluations and attestation requirements of Section 404 of the
Sarbanes-Oxley Act and any delays or difficulty in satisfying these requirements or negative reports
concerning our internal controls could adversely affect our future results of operations and our stock
price;
• We are subject to risks of non-compliance with environmental, health and safety regulations;
• We have significant operations in locations which could be materially and adversely impacted in the
event of a natural disaster or other significant disruption;
• We have adopted certain measures that may have anti-takeover effects which may make an
acquisition of our Company by another company more difficult;
• New regulations related to conflict minerals will force us to incur additional expenses, may make our
supply chain more complex, and may result in damage to our relationships with customers; and
• The matters set forth in this Report generally, including the risk factors set forth in ‘‘Part I. Item 1A.
Risk Factors.’’
Consequently, such forward-looking statements should be regarded solely as the current plans,
estimates and beliefs of Veeco Instruments Inc. (together with its consolidated subsidiaries, ‘‘Veeco’’,
the ‘‘Company’’, ‘‘we’’, ‘‘us’’, and ‘‘our’’, unless the context indicates otherwise). The Company does not
undertake any obligation to update any forward-looking statements to reflect future events or
circumstances after the date of such statements.
3
Explanatory Note
Although this report relates to the year ended December 31, 2012, certain information is presented as
of the time this report is being filed, rather than as of December 31, 2012. In particular, except as
expressly stated, the information in Item 1. Business, Item 1A. Risk Factors, Item 2. Properties and
Item 3. Legal Proceedings, as well as information about prices of our common stock and dividends in
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities, is presented as of the time this report is being filed or as close to the time this report
is filed as is practicable. Our business and financial condition at the date this report is filed is different
from what our business and financial condition was as of December 31, 2012. We intend to file our
Quarterly Reports on Form 10-Q for each of the quarters ended March 31, 2013 and June 30, 2013 as
soon as it is practical.
During 2012, the Company commenced an internal investigation in response to information it received
concerning certain issues, including contract documentation issues, related to a limited number of
customer transactions in South Korea. During the review of information in connection with the internal
investigation, questions were raised that prompted the Company to conduct a comprehensive and
extensive review of its revenue recognition accounting for certain multiple element arrangements. The
Company retained experienced counsel, assisted by an experienced outside accounting consulting firm,
to oversee the accounting review undertaken by the Company. The Company completed that review in
October 2013.
The delay in filing our periodic reports began with an announcement, on November 15, 2012, regarding
our accounting review of our application of accounting principles related to the Company’s sales of
multiple element arrangements of MOCVD systems in certain transactions originating in 2009 and
2010. We conducted examinations of our MOCVD transactions to determine whether the revenue and
related expenses were recognized in the appropriate accounting period. Subsequently, we expanded our
accounting review to other relevant transactions of similar multiple element arrangements arising since
2009. In the course of our accounting review, we have examined more than 100 multiple element
arrangements.
The primary focus of the Company’s accounting review concerned whether the Company correctly
interpreted and applied generally accepted accounting principles in the United States (‘‘U.S. GAAP’’)
relating to revenue recognition for multiple element arrangements as set forth in Securities and
Exchange Commission Staff Accounting Bulletin No. 104: Revenue Recognition, and ASC 605-25—
Revenue Recognition: Multiple Element Arrangements (formerly known as EITF 00-21 and
EITF 08-01), to certain sales of Veeco products.
We often enter into large orders with our customers consisting of several elements. For accounting
purposes, these are called multiple element arrangements, and can include systems, upgrades, spare
parts, service, as well as certain other items. Our accounting review examined the selected sales
transactions to determine whether the Company appropriately: (1) identified all of the elements in its
arrangements with customers; (2) determined the proper units of accounting as part of the
arrangements; and (3) allocated the arrangements’ consideration to each of the units of accounting
under the applicable accounting standards. As a result of our accounting review we identified errors in
the consolidated financial statements related to prior periods. The errors were primarily attributable to
the misapplication of U.S. GAAP for recognizing revenue and related costs under multiple element
arrangements and accounting for warranties. We assessed the materiality of these errors, both
quantitatively and qualitatively, and concluded that these errors were not material, individually or in the
aggregate, to our consolidated financial statements in this or any other prior periods. During the course
of our review, we identified net cumulative errors which overstated cumulative net income from
continuing operations through December 31, 2011 by $0.6 million. As a result, in 2012 we recorded
4
adjustments to correct all prior periods resulting in a decrease in net income from continuing
operations of $0.6 million.
While performing the foregoing accounting review, our Chief Executive Officer and the Chief Financial
Officer supervised and participated in conducting an evaluation of the effectiveness of our internal
control over financial reporting based on the criteria in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (‘‘COSO’’). Based upon
that evaluation, management identified material weaknesses in the Company’s internal control over
financial reporting and therefore management concluded that we did not maintain effective internal
control over financial reporting through the date of this report based on the criteria established by
COSO.
Notwithstanding the material weaknesses discussed in ‘‘Part II, Item 9a. Controls and Procedures’’ in this
Report and based upon our accounting review performed during the delayed filing periods, our
management has concluded that our consolidated financial statements included in this report on
Form 10-K are fairly stated in all material respects in accordance with U.S. GAAP.
5
VEECO INSTRUMENTS INC.
INDEX
Safe Harbor Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Explanatory Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31
Item 6. Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . .
55
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59
Item 10. Directors, Executive Officers, and Corporate Governance . . . . . . . . . . . . . . . . . . . .
59
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
94
Item 13. Certain Relationships, Related Transactions and Director Independence . . . . . . . . . .
95
Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
102
INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
104
Financial Statement Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-1
6
PART I.
Item 1.
Business
The Company
Veeco Instruments Inc. (together with its consolidated subsidiaries, ‘‘Veeco’’, the ‘‘Company’’, ‘‘we’’,
‘‘us’’, and ‘‘our’’, unless the context indicates otherwise) creates Process Equipment that enables
technologies for a cleaner and more productive world. We design, manufacture and market equipment
primarily sold to make light emitting diodes (‘‘LED’’s) and hard-disk drives, as well as for concentrator
photovoltaics, power semiconductors, wireless components, and micro-electromechanical systems
(‘‘MEMS’’).
Veeco develops highly differentiated, ‘‘best-in-class’’ Process Equipment for critical performance steps.
Our products feature leading technology, low cost-of-ownership and high throughput. Core
competencies in advanced thin film technologies, over 200 patents, and decades of specialized process
know-how helps us to stay at the forefront of these demanding industries.
Veeco’s LED & Solar segment designs and manufactures metal organic chemical vapor deposition
(‘‘MOCVD’’) and molecular beam epitaxy (‘‘MBE’’) systems and components sold to manufacturers of
LEDs, wireless components, power semiconductors, and concentrator photovoltaics, as well as for R&D
applications.
Veeco’s Data Storage segment designs and manufactures systems used to create thin film magnetic heads
(‘‘TFMH’’s) that read and write data on hard disk drives. These include ion beam etch, ion beam
deposition, diamond-like carbon, physical vapor deposition, chemical vapor deposition, and slicing,
dicing and lapping systems. While our systems are primarily sold to hard drive customers, they also
have applications in optical coatings, MEMS and magnetic sensors, and extreme ultraviolet (‘‘EUV’’)
lithography.
As of September 30, 2013, Veeco’s approximately 780 employees support our customers through
product and process development, training, manufacturing, and sales and service sites in the U.S.,
South Korea, Taiwan, China, Singapore, Japan, Europe and other locations.
Veeco Instruments Inc. was organized as a Delaware corporation in 1989.
Our Growth Strategy
Veeco’s growth strategy consists of:
• Providing differentiated Process Equipment to address customers’ next generation product
development roadmaps;
• Investing to win through focused research and development spending in markets that we believe
provide significant growth opportunities or are at an inflection point in Process Equipment
requirements. Examples include LED, power semiconductor devices, MEMS, and organic light
emitting diodes (‘‘OLED’’);
• Leveraging our world-class sales channel and local process applications support to build strong
strategic relationships with technology leaders;
• Expanding our portfolio of service products that improve the performance of our systems, including
spare parts, upgrades and consumables to drive growth and improve customer satisfaction;
• Combining outsourced and internal manufacturing strategies to flex manufacturing capacity through
industry investment cycles; and
• Pursuing partnerships and acquisitions to expand our product portfolio and accelerate our growth.
7
Business Overview and Industry Trends
General Introduction: Our deposition, etch and other systems are applicable to the creation of a broad
range of microelectronic components, including LEDs, TFMHs and compound semiconductor devices.
Our customers who manufacture these devices invest in equipment in order to advance their next
generation products and deliver more efficient and cost effective technology solutions.
Following the global recession in 2008-2009, Veeco experienced a rapid improvement in business
conditions in late 2009 and 2010. Demand for Veeco’s MOCVD equipment increased dramatically,
primarily from customers in South Korea and Taiwan, as LEDs became the standard illumination for
TV backlighting. Veeco also experienced a strong increase in demand for MOCVD from customers in
China due to government funding of LED fabrication facility expansions throughout the region. Our
revenue increased over 200% in 2010 and 5% in 2011 as a result of this unprecedented two year
investment in MOCVD systems.
Beginning in the middle of 2011 and through the date of this Report in 2013, Veeco’s MOCVD
business declined significantly due to overcapacity in LED manufacturing. Veeco’s total revenues
declined 47% to $516.0 million in 2012, with its systems revenue declining 54%. However, due to a
strong focus on expanding its offering of spare parts, upgrades and consumables, our services business
grew 26% during 2012. As an indication of the continued weak business environment, Veeco’s bookings
for the first six months of 2013 and 2012 were $155.2 million and $215.9, respectively. The weak
business environment has caused us to record a total expense for slow moving items in 2012 of
approximately $9.6 million, which negatively impacted our gross margin for 2012. Furthermore, the
Company has been experiencing significant pricing pressures in MOCVD due to the weak overall
market conditions in LED throughout 2013.
The following is a review of our two business segments and the multi-year technology trends that
impact each.
LED & Solar Business Overview and Trends: We are a leading supplier of equipment used to create
LEDs and concentrator solar cells. MOCVD and MBE technologies grow compound semiconductor
materials (such as gallium nitride (‘‘GaN’’), gallium arsenide (‘‘GaAs’’), aluminum indium gallium
phosphide(‘‘AlInGaP’’) and indium phosphide (‘‘InP’’)) at the atomic scale. Epitaxy is the critical first
step in compound semiconductor wafer fabrication and is considered to be the highest value added
process, ultimately determining device functionality and performance.
The demand for MOCVD tools to grow GaN based materials (the thin films that convert energy to
light) to make LEDs grew dramatically beginning in mid-2009, with industry shipments of MOCVD
reactors growing from approximately 230 reactors in 2009, to approximately 800 reactors in 2010 and
700 in 2011. Established LED industry leaders in Taiwan, U.S., Europe, South Korea and Japan, as well
as emerging players in China spurred by government incentives and economic development funding,
invested heavily in MOCVD equipment to ramp LED capacity. Following this large investment, the
LED industry entered an overcapacity situation, evidenced by low tool utilization rates being reported
by many key global customers. As a result, new orders for MOCVD systems declined sharply in 2012,
and we estimate that industry shipments of MOCVD reactors were approximately 240 in 2012. While
utilization rates of our equipment in many customer facilities has improved in 2013 from prior trough
levels in 2012, weak business conditions in MOCVD persist in 2013 and it is likely that MOCVD
reactor shipments will decline again this year. In the short term, it is difficult for us to predict when the
supply/demand of LEDs will return to equilibrium and when order rates for our MOCVD products will
meaningfully recover.
While consumer electronics (e.g., cell phones, laptops, LED-TVs) have been the dominant end markets
for LED technology over the past decade, and for which most of the new MOCVD capacity was
installed, these applications are expected to reach saturation in the next few years. Conversely, the
8
general lighting market is in its infancy, and we believe that thousands of additional MOCVD tools will
be required as LEDs become widely adopted for this much larger market application.
As part of the shift toward more efficient energy use across the globe, we believe LED technology will
play a key role in energy and cost savings in lighting. We see this opportunity as both vast and long
term in nature given that LED lighting is just now beginning to penetrate the global lighting market.
LED adoption is happening initially in outdoor, commercial and industrial lighting where high usage
and lower efficiency make incumbent lighting costly. Further adoption across all forms of lighting is
expected to occur in the coming years with rapidly declining LED costs, shortening payback periods
versus conventional lighting technologies, and ‘‘ban-the-bulb’’ legislation now underway in more than
20 countries around the globe. In addition to the incandescent bulb phase-outs, many countries have
begun to implement policies to accelerate adoption of LEDs. These include China’s ‘‘10 cities 10,000
lights’’ program, South Korea’s ‘‘20-60’’ plan targeting 60% penetration of lighting on a national level
by 2020, and Japan’s ‘‘Basic Energy Plan’’ with specific goals for energy efficient lighting. In March
2013, LED industry forecasters at Digitimes Research projected that LED lighting will represent about
38.6% of the total lighting market, and will be worth approximately $44.2 billion by 2015.
Future equipment and capital spending will continue to drive cost reduction in LED technology
through larger wafers, automation and dedicated equipment to improve manufacturing yield and
throughput for lighting class LED products. In order to maximize this opportunity, we introduced
several new generations of MOCVD tools, including our TurboDisc K-Series and MaxBright
MOCVD systems which provide customers with significant cost of ownership advantages when
compared with alternative equipment. These activities enabled us to overtake our primary competitor in
market share in 2012. We intend to continue to invest heavily in MOCVD research and development to
accelerate lighting adoption and maintain our leadership position.
Another application for MOCVD is in the solar market. MOCVD equipment can also be used to
manufacture high-efficiency triple junction solar cells, otherwise known as Concentrator Photovoltaic
(‘‘CPV’’). Arsenide phosphide (‘‘AsP’’) MOCVD is the technology of choice to build the critical
compound semiconductor layers for the CPV device. Veeco currently sells a small number of MOCVD
systems each year for this application. CPV Solar is emerging as a new technology niche with
proof-of-concept scale installations (1 megawatt (‘‘MW’’) or less), and in 2012 and 2013 multiple pilot
production utility-scale projects are being developed around the world.
Power semiconductors are an emerging market opportunity for MOCVD equipment. While siliconbased transistors are the mainstream forms of power electronic devices today, GaN-on-Silicon (‘‘Si’’)
based power electronics developed on MOCVD tools can potentially deliver higher performance
(i.e. higher efficiency and switching speed). Global industry leaders in power electronics are currently
working on research and development programs to explore this new technology. GaN-on-Si based
power devices have potential for information technology and consumer devices (e.g. power supplies,
inverters), automotive (e.g. hybrid automobiles) and industrial applications (e.g. power distribution, rail
transportation, wind turbines). Additionally, Veeco supports its customers around the globe that are
developing GaN-on-Si based technology to potentially lower LED manufacturing costs by depositing
thin film materials on silicon rather than sapphire substrates.
Veeco’s MBE systems, sources and components are used to manufacture critical epilayers in
applications such as solar cells, fiber-optics, mobile phones, radar systems and displays. Our business
continues to be influenced by long-term market trends associated with the increasing demand for
gallium arsenide (‘‘GaAs’’) devices to support the adoption of smart phones within the larger mobile
phone handset market. Each one of these complex devices contains an increasing number of power
amplifiers or other compound semiconductor radio frequency (‘‘RF’’) components. Due to industry
consolidation and resulting overcapacity, our sales of MBE production tools have been declining for
9
about a year. Veeco has put additional resources in place to improve our market share in sales of MBE
systems to scientific research organizations and universities.
Data Storage Business Overview and Trends: Worldwide storage demand continues to increase, driven
by the proliferation of intelligent internet storage, cloud computing, and external storage. While much
has been written about the competition hard disk drives (‘‘HDDs’’) face from flash memory, we believe
that HDDs will continue to provide the best value for mass storage and will remain at the forefront of
large capacity storage applications. According to data storage research firm TrendFocus’ February 2013
report, shipments of TFMHs, the HDD component that Veeco’s equipment makes, are forecasted to
grow at a compound annual growth rate of 6.2% from 2013 to 2017.
While technological change continues in data storage, the industry has gone through a period of
maturation, including vertical integration and consolidation. A recovery in capital spending by our key
data storage customers in 2010, combined with the successful introduction of several new deposition
tools to advance areal density, enabled Veeco to report revenue growth in both 2010 and 2011. Natural
disasters in Japan (tsunami) and Thailand (floods) caused major disruptions to the HDD supply chain
in 2011. The floods in Thailand resulted in an unexpected increase in equipment orders for Veeco in
the fourth quarter of 2011 as customers rebuilt lost capacity. This led to record levels of Data Storage
revenue in the first half of 2012. However, this significant equipment investment, combined with
industry consolidation and a slowdown in hard drive unit demand in mid-2012 due to weak global
economic conditions, caused Veeco’s hard drive customers to freeze capacity additions. So, for the full
year of 2012, Veeco’s Data Storage revenue was flat and orders were well below recent historical
averages. Industry overcapacity and weak order rates have continued into 2013 and it is unclear when
hard drive manufacturers will need to make significant investments in new equipment capacity.
Throughout industry cycles, Veeco continues to invest in developing systems to support advanced
technologies such as heat assisted magnetic recording (‘‘HAMR’’). HAMR is a technology that
magnetically records data on high-stability media using laser thermal assistance to first heat the
material. HAMR takes advantage of high-stability magnetic compounds that can store single bits in a
much smaller area than in current hard drive technology.
Veeco’s Data Storage systems are also sold for applications in MEMS, magnetic sensors, optical
coatings and also to manufacturers of EUV photomasks. Veeco has put in place new product
development, marketing and sales strategies to grow the non-Data Storage applications for our
technologies.
Our Products
We have two business segments, LED & Solar and Data Storage. Net sales for these business segments
are illustrated in the following table (dollars in thousands):
For the year ended December 31,
2012
2011
2010
Segment Analysis
LED & Solar . . . . . . . . . . . . . . . . . . . . . . . . . .
Data Storage . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$363,181 $827,797 $795,565
70.4%
84.5%
85.5%
152,839
151,338
135,327
29.6%
15.5%
14.5%
$516,020 $979,135 $930,892
Please see note 11. Foreign Operations, Geographic Area and Product Segment Information to our
Consolidated Financial Statements for additional information regarding our reportable segments and
sales by geographic location.
10
LED & Solar
Metal Organic Chemical Vapor Deposition Systems (‘‘MOCVD’’): We are the world’s leading supplier of
MOCVD technology. MOCVD production systems are used to make GaN-based devices (green and
blue LEDs) and AsP-based devices (red, orange and yellow LEDs), which are used today in television
and laptop backlighting, general illumination, large area signage, specialty illumination and many other
applications. Our AsP MOCVD systems also are used to make high-efficiency concentrator
photovoltaics. In 2011, we introduced the industry’s first production-proven multi-chamber MOCVD
system, the MaxBright, for high-volume production of LEDs. Veeco sells MOCVD systems in either
single or multi-chamber configurations. In 2012, Veeco introduced the TurboDisc MaxBright M, MHP
and K465i HP GaN MOCVD systems, the industry’s highest productivity, highest footprint efficiency
platforms for LED manufacturing.
Molecular Beam Epitaxy Systems (‘‘MBE’’): MBE is the process of precisely depositing epitaxially
aligned atomically thin crystal layers, or epilayers, of elemental materials onto a substrate in an
ultra-high vacuum environment. For many compound semiconductors, MBE is the critical first step of
the fabrication process, ultimately determining device functionality and performance. We provide MBE
systems and components for the production of wireless devices (e.g. power amplifiers, high electron
mobility transistors or hetero-junction bipolar transistors) and a broad array of compound
semiconductor materials research applications.
Data Storage
Ion Beam Deposition (‘‘IBD’’) Systems: Our SPECTOR-HT IBD systems and NEXUS IBD systems
utilize ion beam technology to deposit precise layers of thin films. The NEXUS systems may be
included on our cluster system platform to allow either parallel or sequential etch/deposition processes.
IBD systems deposit high purity thin film layers and provide maximum uniformity and repeatability. In
addition to IBD systems, we provide a broad array of ion beam sources. These technologies are
applicable in the hard drive industry as well as for optical coatings and other end markets.
Ion Beam Etch (‘‘IBE’’) Systems: Our NEXUS IBE systems etch precise, complex features for use
primarily by data storage and telecommunications device manufacturers in the fabrication of discrete
and integrated microelectronic devices.
Physical Vapor Deposition (‘‘PVD’’) Systems: Our NEXUS PVD systems offer manufacturers a highly
flexible deposition platform for developing next-generation data storage applications.
Diamond-Like Carbon (‘‘DLC’’) Deposition Systems:
coatings on advanced TFMHs.
Our DLC deposition systems deposit protective
Chemical Vapor Deposition (‘‘CVD’’) Systems: Our NEXUS CVD systems deposit conformal films for
advanced TFMH applications.
Precision Lapping, Slicing, and Dicing Systems: Our Optium products generally are used in
‘‘back-end’’ applications in a data storage fabrication facility where TFMHs or ‘‘sliders’’ are fabricated.
This equipment includes lapping tools, which enable precise material removal within three nanometers,
which is necessary for next generation TFMHs. We also manufacture tools that slice and dice wafers
into rowbars and TFMHs.
Optical Coatings: Our SPECTOR-HT IBD system offers manufacturers improvements in target
material utilization, optical endpoint control and process time for cutting-edge optical interference
coating applications.
11
Service and Sales
We sell our products and services worldwide primarily through various strategically located sales and
service facilities in the U.S., Europe and Asia Pacific, and we believe that our customer service
organization is a significant factor in our success. In 2010 and 2011, we significantly expanded our
footprint in Asia to bring training, technology support and R&D closer to our customers through new
sites in China, Taiwan and South Korea. We provide service and support on a warranty, service contract
or an individual service-call basis. We believe that offering timely support creates stronger relationships
with customers and provides us with a significant competitive advantage. Revenues from the sale of
parts, service and support represented approximately 21%, 9% and 7% of our net sales for the years
ended December 31, 2012, 2011 and 2010, respectively. Parts and consumables sales represented
approximately 17%, 7% and 5% of our net sales for those years, respectively, and service and support
sales were 4%, 2% and 2%, respectively.
Customers
We sell our products to many of the world’s major LED, solar and hard drive manufacturers as well as
to customers in other industries, research centers, and universities. We rely on certain principal
customers for a significant portion of our sales. Sales to Western Digital in our Data Storage segment
accounted for more than 10% of Veeco’s total net sales in 2012, Elec-Tech International Co. Ltd. and
Sanan Optoelectronics in our LED and Solar segment each accounted for more than 10% of Veeco’s
total net sales in 2011 and LG Innotek Co. Ltd., Seoul OptoDevice Co. Ltd. and Sanan Optoelectronics
in our LED and Solar segment each accounted for more than 10% of Veeco’s total net sales in 2010. If
any principal customer discontinues its relationship with us or suffers economic difficulties, our
business, prospects, financial condition and operating results could be materially and adversely affected.
Research and Development and Marketing
Our marketing, research and development functions are organized by business unit. We believe that this
organizational structure allows each business unit manager to more closely monitor the products for
which he is responsible, resulting in more efficient marketing and research and development. Our
research and development activities take place at our facilities in Plainview, New York; Poughkeepsie,
New York; Camarillo, California; Ft. Collins, Colorado; Somerset, New Jersey; St. Paul, Minnesota;
Fremont, CA; and South Korea.
We believe that continued and timely development of new products and enhancements to existing
products are necessary to maintain our competitive position. We work collaboratively with our
customers to help ensure our technology and product roadmaps are aligned with customer
requirements.
Our research and development expenses were approximately $95.2 million, $96.6 million and
$56.9 million, or approximately 18%, 10% and 6% of net sales for the years ended December 31, 2012,
2011 and 2010, respectively. These expenses consisted primarily of salaries, project materials and other
product development and enhancement costs.
Suppliers
We currently outsource certain functions to third parties, including the manufacture of all or
substantially all of our new MOCVD systems, Data Storage systems and ion sources. We primarily rely
on several suppliers for the manufacturing of these systems. In addition, certain of the components and
sub-assemblies included in our products are obtained from a single source or a limited group of
suppliers.
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Backlog
Our backlog consists of orders for which we received a firm purchase order, a customer-confirmed
shipment date within twelve months and a deposit, where required.
Our backlog decreased to $150.2 million as of December 31, 2012 from $332.9 million as of
December 31, 2011. During the year ended December 31, 2012, we recorded net backlog adjustments
of approximately $58.5 million. The adjustments consisted of $42.0 million related to orders that no
longer met our booking criteria, primarily due to contracts being extended past a twelve month delivery
time frame, and $15.4 million of order cancellations and order adjustments of $1.1 million. Our backlog
at September 30, 2013 remained relatively flat compared to December 31, 2012.
Competition
In each of the markets that we serve, we face substantial competition from established competitors,
some of which have greater financial, engineering and marketing resources than us, as well as from
smaller competitors. In addition, many of our products face competition from alternative technologies,
some of which are more established than those used in our products. Significant factors for customer
selection of our tools include system performance, accuracy, repeatability, ease of use, reliability, cost of
ownership and technical service and support. We believe that we are competitive based on the customer
selection factors in each market we serve. None of our competitors compete with us across all of our
product lines.
Some of our competitors include, but are not limited to: Aixtron; Canon Anelva Corporation; DCA
Instruments; Leybold Optics; Oerlikon Balzers; Oxford Instruments; Toyo Nippon Sanso; and Riber.
Intellectual Property
Our success depends in part on our proprietary technology. Although we attempt to protect our
intellectual property rights through patents, copyrights, trade secrets and other measures, there can be
no assurance that we will be able to protect our technology adequately or that competitors will not be
able to develop similar technology independently.
We have patents and exclusive and non-exclusive licenses to patents owned by others covering certain
of our products, which we believe provide us with a competitive advantage. We have a policy of seeking
patents on inventions concerning new products and improvements as part of our ongoing research,
development and manufacturing activities. We believe that there is no single patent or exclusive or
non-exclusive license to patents owned by others that is critical to our operations, as the success of our
business depends primarily on the technical expertise, innovation, customer satisfaction and experience
of our employees.
We also rely upon trade secret protection for our confidential and propriety information. There can be
no assurance that others will not independently develop substantially equivalent proprietary information
and techniques or otherwise gain access to our trade secrets or that we can meaningfully protect our
trade secrets. In addition, we cannot be certain that we will not be sued by third parties alleging that
we have infringed their patents or other intellectual property rights. If any third party sues us, our
business, results of operations or financial condition could be materially adversely affected.
Employees
As of September 30, 2013, we had approximately 780 employees and contractors support our customers
through product and process development, training, manufacturing, and sales and service sites in the
U.S., South Korea, Taiwan, China, Singapore, Japan, Europe and other locations. We had 159 in
manufacturing and testing, 88 in sales and marketing, 155 in service and product support, 233 in
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engineering, research and development and 122 in information technology, general administration and
finance. In addition, we also had 23 temporary employees/outside contractors.
As of December 31, 2012, we had approximately 853 employees, of which there were 161 in
manufacturing and testing, 101 in sales and marketing, 173 in service and product support, 263 in
engineering, research and development and 124 in information technology, general administration and
finance. In addition, we also had 31 temporary employees/outside contractors, which support our
variable cost strategy. The success of our future operations depends in large part on our ability to
recruit and retain engineers, technicians and other highly-skilled professionals who are in considerable
demand. We feel that we have adequate programs in place to attract, motivate and retain our
employees. We plan to monitor industry practices to make sure that our compensation and employee
benefits remain competitive. However, there can be no assurance that we will be successful in recruiting
or retaining key personnel. We believe that our relations with our employees are good.
Available Information
We file annual, quarterly and current reports, information statements and other information with the
Securities and Exchange Commission (the ‘‘SEC’’). The public may obtain information by calling the
SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file electronically with the SEC.
The address of that site is www.sec.gov. For quarterly and annual reports, only those reports that were
required to be filed through December 31, 2012 are available as of the date of this report.
Internet Address
We maintain a website where additional information concerning our business and various upcoming
events can be found. The address of our website is www.veeco.com. We provide a link on our website,
under Investors—Financial—SEC Filings, through which investors can access our filings with the SEC,
including our filed annual report on Form 10-K, filed quarterly reports on Form 10-Q, current reports
on Form 8-K and all amendments to those reports. These filings are posted to our website, as soon as
reasonably practicable after we electronically file such material with the SEC. For quarterly and annual
reports, only those reports that were required to be filed through December 31, 2012 are available as
of the date of this report.
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Item 1A.
Risk Factors
Risk Factors That May Impact Future Results
In addition to the other information set forth herein, the following risk factors should be carefully
considered by shareholders of and potential investors in the Company.
Our operating results have been, and may continue to be, adversely affected by unfavorable market conditions.
Market conditions relative to the segments in which we operate have deteriorated significantly in many
of the countries and regions in which we do business, and may remain depressed for the foreseeable
future. Our MOCVD order volumes decreased significantly in the latter part of 2011, remained
depressed through 2012 and 2013, and may continue to remain at low levels. Foreign government
incentives designed to encourage the development of the LED industry have been curtailed, and the
demand for our MOCVD products has softened. We have experienced and may continue to experience
customer rescheduling and, to a lesser extent, cancellations of orders for our products. Continuing
adverse market conditions relative to our products would negatively impact our business, and could
result in:
• further reduced demand for our products;
• further rescheduling and cancellations of orders for our products, resulting in negative backlog
adjustments;
• increased price competition and lower margin for our products;
• increased competition from sellers of used equipment or lower-priced alternatives to our products;
• increased risk of excess and obsolete inventories;
• increased risk in the collectability of amounts due from our customers;
• increased risk in potential reserves for doubtful accounts and write-offs of accounts receivable;
• disruptions in our supply chain as we reduce our purchasing volumes and limit our contract
manufacturing operations; and
• higher operating costs as a percentage of revenues.
If the markets in which we participate experience a protracted downturn and/or a slow recovery period,
this could negatively impact our sales and revenue generation, margins and operating expenses, and
consequently have a material adverse effect on our business, financial condition and results of
operations.
Timing of market adoption of LED technology for general lighting is uncertain.
Our future business prospects depend largely on the adoption of LED technology for general
illumination applications, including residential, commercial and street lighting markets. Potential
barriers to adoption include higher initial costs and customer familiarity with, and substantial
investment and know-how in, existing lighting technologies. While the use of LED technology for
general lighting has grown in recent years, challenges remain and widespread adoption may not occur
at currently projected rates. The adoption of, or changes in, government policies that discourage the
use of traditional lighting technologies may impact LED adoption rates and, in turn, the demand for
our products. Furthermore, if new technologies evolve as a viable alternative to LED devices, our
current products and technology could be placed at a competitive disadvantage or become obsolete
altogether. Delays in the adoption of LED technology for general lighting purposes could materially
and adversely affect our business, financial condition and results of operations.
15
Our failure to successfully manage our outsourcing activities or failure of our outsourcing partners to perform
as anticipated could adversely affect our results of operations and our ability to adapt to fluctuating order
volumes.
To better align our costs with market conditions, increase the percentage of variable costs relative to
total costs and to increase productivity and operational efficiency, we have outsourced certain functions
to third parties, including the manufacture of all or substantially all of our new MOCVD systems, Data
Storage systems and ion sources. We are relying heavily on our outsourcing partners to perform their
contracted functions and to allow us the flexibility to adapt to changing market conditions, including
periods of significantly diminished order volumes. If our outsourcing partners do not perform as
required, or if our outsourcing model does not allow us to realize the intended cost savings and
flexibility, our results of operations (and those of our third party providers) may be adversely affected.
Disputes and possibly litigation involving third party providers could result and we could suffer damage
to our reputation. Dependence on contract manufacturing and outsourcing may also adversely affect
our ability to bring new products to market. Although we attempt to select reputable providers, it is
possible that one or more of these providers could fail to perform as we expect. In addition, the role of
third party providers has required and will continue to require us to implement changes to our existing
operations and adopt new procedures and processes for retaining and managing these providers in
order to realize operational efficiencies, assure quality, and protect our intellectual property. If we do
not effectively manage our outsourcing strategy or if third party providers do not perform as
anticipated, we may not realize the benefits of productivity improvements and we may experience
operational difficulties, increased costs, manufacturing and/or installation interruptions or delays,
inefficiencies in the structure and/or operation of our supply chain, loss of intellectual property rights,
quality issues, increased product time-to-market and/or inefficient allocation of human resources, any or
all of which could materially and adversely affect our business, financial condition and results of
operations.
The further reduction or elimination of foreign government subsidies and economic incentives may adversely
affect the future order rate for our MOCVD equipment.
We generate a significant portion of our revenue in China. In recent years, the Chinese government has
provided various incentives to encourage development of the LED industry, including subsidizing a
significant portion of the purchase cost of MOCVD equipment. These subsidies have enabled and
encouraged certain customers in this region to purchase more of our MOCVD equipment than these
customers might have purchased without these subsidies. These subsidies have now been curtailed and
are expected to further decline over time and may end at some point in the future. The further
reduction or elimination of these incentives may result in a further reduction in future orders for our
MOCVD equipment in this region which could materially and adversely affect our business, financial
condition and results of operations.
A related risk is that many customers use or had planned to use Chinese government subsidies, in
addition to other incentives from the Chinese government, to build new manufacturing facilities or to
expand existing manufacturing facilities. Delays in the start-up of these facilities or the cancellation of
construction plans altogether, together with other related issues pertaining to customer readiness, could
adversely impact the timing of our revenue recognition, could result in further order cancellations, and
could have other negative effects on our financial condition and operating results.
Our operating results have been, and may continue to be, adversely affected by tightening credit markets.
As a global company with worldwide operations, we are subject to volatility and adverse consequences
associated with worldwide economic downturns. As seen in recent years, in the event of a worldwide
downturn, many of our customers may delay or further reduce their purchases of our products and
services. If negative conditions in the global credit markets prevent our customers’ access to credit,
16
product orders in these channels may decrease which could result in lower revenue. Likewise, if our
suppliers face challenges in obtaining credit, in selling their products or otherwise in operating their
businesses, they may become unable to continue to offer the materials we use to manufacture our
products. With the recent downturn in our MOCVD segment, we have experienced, and may continue
to experience, lower than anticipated order levels, cancellations of orders in backlog, rescheduling of
customer deliveries, and attendant pricing pressures, all of which could adversely affect our results of
operations.
Furthermore, tightening macroeconomic measures and monetary policies adopted by China’s
government aimed at preventing overheating of China’s economy and controlling China’s high level of
inflation have limited, and may continue to limit, the availability of financing to our customers in this
region. Limited financing, or delays in the timing of such financing, may result in delays and
cancellations of shipments of our products (and associated revenues) conditioned on such financing.
In addition, we finance a portion of our sales through trade credit. In addition to ongoing credit
evaluations of our customers’ financial condition, we seek to mitigate our credit risk by obtaining
deposits and/or letters of credit on certain of our sales arrangements. We could suffer significant losses
if a customer whose accounts receivable we have not secured fails or is otherwise unable to pay us. A
significant loss in collections on our accounts receivable would have a negative impact on our financial
results.
Our backlog is subject to customer cancellation or modification and such cancellation could result in
decreased sales and increased provisions for excess and obsolete inventory and/or liabilities to our suppliers
for products no longer needed.
Customer purchase orders are subject to cancellation or rescheduling by the customer, sometimes with
limited or no penalties. Often, we have incurred expenses prior to such cancellation without adequate
monetary compensation. We adjust our backlog for such cancellations, contract modifications, and
delivery delays that result in a delivery period in excess of one year, among other items. The current
and forecasted downturn in our MOCVD reporting unit could result in further increases in order
cancellations and/or postponements.
We record a provision for excess and obsolete inventory based on historical and future usage trends
and other factors including the consideration of the amount of backlog we have on hand at any
particular point in time. If our backlog is canceled or modified, our estimates of future product
demand may prove to be inaccurate, in which case we may have understated the provision required for
excess and obsolete inventory. A weaker than expected business environment has caused us to record a
greater expense for slow moving items in 2012 compared to 2011 which negatively impacted our gross
margin for 2012. In the future, if we determine that our inventory is overvalued, we will be required to
recognize such costs in our financial statements at the time of such determination. In addition, we
place orders with our suppliers based on our customers’ orders to us. If our customers cancel their
orders with us, we may not be able to cancel our orders with our suppliers and may be required to take
a charge for these cancelled commitments to our suppliers. Any such charges could be material to our
results of operations and financial condition.
Our failure to estimate customer demand accurately could result in excess or obsolete inventory and/or
liabilities to our suppliers for products no longer needed, while manufacturing interruptions or delays could
affect our ability to meet customer demand.
Our business depends on our ability to accurately forecast and supply equipment, services and related
products that meet the rapidly changing technical and volume requirements of our customers, which
depends in part on the timely delivery of parts, components and subassemblies (collectively, parts) from
suppliers. The current uncertain worldwide economic conditions and market instabilities make it
17
increasingly difficult for us (and our customers and our suppliers) to accurately forecast future product
demand. If actual demand for our products is different than expected, we may purchase more/fewer
parts than necessary or incur costs for canceling, postponing or expediting delivery of parts. If we
overestimate the demand for our products, excess inventory could result which could be subject to
heavy price discounting, which could become obsolete, and which could subject us to liabilities to our
suppliers for products no longer needed. In addition, the volatility of demand for capital equipment
increases capital, technical and other risks for companies in the supply chain.
Furthermore, some key parts may be subject to long lead-times and/or obtainable only from a single
supplier or limited group of suppliers, and some sourcing or subassembly is provided by suppliers
located in countries other than the United States. We may experience significant interruptions of our
manufacturing operations, delays in our ability to deliver products or services, increased costs or
customer order cancellations as a result of:
• the failure or inability of suppliers to timely deliver quality parts;
• volatility in the availability and cost of materials;
• difficulties or delays in obtaining required import or export approvals;
• information technology or infrastructure failures;
• natural disasters (such as earthquakes, tsunamis, floods or storms); or
• other causes (such as regional economic downturns, pandemics, political instability, terrorism, or acts
of war) could result in delayed deliveries, manufacturing inefficiencies, increased costs or order
cancellations.
In addition, in the event of an unanticipated increase in demand for our products, our need to rapidly
increase our business and manufacturing capacity may be limited by working capital constraints of our
suppliers and may exacerbate any interruptions in our manufacturing operations and supply chain and
the associated effect on our working capital. Any or all of these factors could materially and adversely
affect our business, financial condition and results of operations.
The cyclicality of the industries we serve directly affects our business.
Our business depends in large part upon the capital expenditures of manufacturers in the LED
markets, data storage markets, and other device markets. We are subject to the business cycles of these
industries, the timing, length, and volatility of which are difficult to predict. These industries have
historically been highly cyclical and have experienced significant economic downturns in the last decade.
As a capital equipment provider, our revenues depend in large part on the spending patterns of these
customers, who often delay expenditures or cancel or reschedule orders in reaction to variations in
their businesses or general economic conditions. In downturns, we must be able to quickly and
effectively align our costs with prevailing market conditions, as well as motivate and retain key
employees. However, because a portion of our costs are fixed, our ability to reduce expenses quickly in
response to revenue shortfalls may be limited. Downturns in one or more of these industries, including
the current MOCVD and Data Storage downturn, have had and will likely have a material adverse
effect on our business, financial condition and operating results. Alternatively, during periods of rapid
growth, we must be able to acquire and/or develop sufficient manufacturing capacity to meet customer
demand, and attract, hire, assimilate and retain a sufficient number of qualified people. We cannot give
assurances that our net sales and operating results will not be adversely affected if our customers
experience economic downturns or slowdowns in their businesses.
18
We rely on a limited number of suppliers, some of whom are our sole source for particular components.
We currently outsource certain functions to third parties, including the manufacture of all or
substantially all of our new MOCVD systems, Data Storage systems and ion sources. We primarily rely
on several suppliers for the manufacturing of these systems. We plan to maintain some level of internal
manufacturing capability for these systems. The failure of our present suppliers to meet their
contractual obligations under our supply arrangements and our inability to make alternative
arrangements or resume the manufacture of these systems ourselves could have a material adverse
effect on our revenues, profitability, cash flows, and relationships with our customers.
In addition, certain of the components and sub-assemblies included in our products are obtained from
a single source or a limited group of suppliers. Our inability to develop alternative sources, if necessary,
could result in a prolonged interruption in supply or a significant increase in the price of one or more
components, which could adversely affect our operating results.
Our sales to LED and data storage manufacturers are highly dependent on these manufacturers’ sales for
consumer electronics applications, which can experience significant volatility due to seasonal and other
factors, which could materially adversely impact our future results of operations.
The demand for LEDs and hard disk drives is highly dependent on sales of consumer electronics, such
as flat-panel televisions and computer monitors, computers, tablets, digital video recorders, camcorders,
MP3/4 players, smartphones, cell phones and other mobile devices. Manufacturers of LEDs and hard
disk drives are among our largest customers and have accounted for a substantial portion of our
revenues for the past several years. Factors that could influence the levels of spending on consumer
electronic products include consumer confidence, access to credit, volatility in fuel and other energy
costs, conditions in the residential real estate and mortgage markets, labor and healthcare costs and
other macroeconomic factors affecting consumer spending behavior. These and other economic factors
have had and could continue to have a material adverse effect on the demand for our customers’
products and, in turn, on our customers’ demand for our products and services and on our financial
condition and results of operations. Furthermore, manufacturers of LEDs have in the past
overestimated their potential market share growth. If this growth is currently overestimated or is
overestimated in the future, we may experience further cancellations of orders in backlog, rescheduling
of customer deliveries, obsolete inventory and/or liabilities to our suppliers for products no longer
needed.
In addition, the demand for some of our customers’ products can be even more volatile and
unpredictable due to the possibility of competing technologies, such as flash memory as an alternative
to hard disk drives. Unpredictable fluctuations in demand for our customers’ products or rapid shifts in
demand from our customers’ products to alternative technologies could materially adversely impact our
future results of operations.
We are exposed to the risks of operating a global business, including the need to obtain export licenses for
certain of our shipments and political risks in the countries we operate.
Approximately 84%, 90%, and 90% of our net sales for the years ended 2012, 2011 & 2010,
respectively were generated from sales outside of the United States. We expect sales from non-U.S.
markets to continue to represent a significant, and possibly increasing, portion of our sales in the
future. Our non-U.S. sales and operations are subject to risks inherent in conducting business abroad,
many of which are outside our control, including:
• difficulties in managing a global enterprise, including staffing, managing distributors and
representatives, and repatriation of earnings;
19
• regional economic downturns, varying foreign government support, and unstable political
environments;
• political and social attitudes, laws, rules, regulations and policies within countries that favor domestic
companies over non-domestic companies, including government-supported efforts to promote the
development and growth of local competitors;
• longer sales cycles and difficulty in collecting accounts receivable;
• multiple, conflicting, and changing governmental laws and regulations, including import/export
controls and other trade barriers;
• reliance on various information systems and information technology to conduct our business, which
may be vulnerable to cyber-attacks by third parties or breached due to employee error, misuse or
other causes that could result in business disruptions, loss of or damage to intellectual property,
transaction errors, processing inefficiencies, or other adverse consequences should our security
practices and procedures prove ineffective, and
• different customs and ways of doing business.
These challenges, many of which are associated with sales into China, may continue and recur again in
the future, which could have a material adverse effect on our business. In addition, political instability,
terrorism, acts of war or epidemics in regions where we operate may adversely affect or disrupt our
business and results of operations.
Furthermore, products which are either manufactured in the United States or based on U.S. technology
are subject to the United States Export Administration Regulations (‘‘EAR’’) when exported to and
re-exported from international jurisdictions, in addition to the local jurisdiction’s export regulations
applicable to individual shipments. Currently, our MOCVD deposition systems and certain of our other
products are controlled for export under the EAR. Licenses or proper license exceptions may be
required for the shipment of our products to certain countries. Obtaining an export license requires
cooperation from the customer and customer-facility readiness, and can add time to the order
fulfillment process. While we have generally been successful in obtaining export licenses in a timely
manner, there can be no assurance that this will continue or that an export license can be obtained in
each instance where it is required. If an export license is required but cannot be obtained, then we will
not be permitted to export the product to the customer. The administrative processing, potential delay
and risk of ultimately not obtaining an export license pose a particular disadvantage to us relative to
our non-U.S. competitors who are not required to comply with U.S. export controls. Non-compliance
with the EAR or other applicable export regulations could result in a wide range of penalties including
the denial of export privileges, fines, criminal penalties, and the seizure of commodities. In the event
that any export regulatory body determines that any of our shipments violate applicable export
regulations, we could be fined significant sums and/or our export capabilities could be restricted, which
could have a material adverse impact on our business.
We may be exposed to liabilities under the Foreign Corrupt Practices Act and any determination that we
violated these or similar laws could have a material adverse effect on our business.
We are subject to the Foreign Corrupt Practices Act (‘‘FCPA’’) and other laws that prohibit improper
payments or offers of payments to foreign government officials, as defined by the statute, for the
purpose of obtaining or retaining business. In addition, many of our customers have policies limiting or
prohibiting us from providing certain types or amounts of entertainment, meals or gifts to their
employees. It is our policy to implement safeguards to discourage these practices by our employees and
representatives. However, our safeguards may prove to be ineffective and our employees, consultants,
sales agents or distributors may engage in conduct for which we may be held responsible. Violations of
the FCPA or similar laws or similar customer policies may result in severe criminal or civil sanctions or
20
the loss of supplier privileges to a customer and we may be subject to other liabilities, which could
negatively affect our business, operating results and financial condition.
The timing of our orders, shipments, and revenue recognition may cause our quarterly operating results to
fluctuate significantly.
We derive a substantial portion of our net sales in any fiscal period from the sale of a relatively small
number of high-priced systems. As a result, the timing of recognition of revenue for a single transaction
could have a material effect on our sales and operating results for a particular fiscal period. As is
typical in our industry, orders, shipments, and customer acceptances often occur during the last few
weeks of a quarter. As a result, delay of only a week or two will determine which period revenue is
reported in and can cause volatility in our revenue for a given reporting period. Our quarterly results
have fluctuated significantly in the past, and we expect this trend to continue. If our orders, shipments,
net sales or operating results in a particular quarter do not meet expectations, our stock price may be
adversely affected.
We operate in industries characterized by rapid technological change.
All of our businesses are subject to rapid technological change. Our ability to remain competitive
depends on our ability to enhance existing products and develop and manufacture new products in a
timely and cost effective manner and to accurately predict technology transitions. Because new product
development commitments must be made well in advance of sales, we must anticipate the future
demand for products in selecting which development programs to fund and pursue. Our financial
results for the current year and in the future will depend to a great extent on the successful
introduction of several new products, many of which require achieving increasingly stringent technical
specifications. We cannot be certain that we will be successful in selecting, developing, manufacturing
and marketing new products or new technologies or in enhancing existing products.
We face significant competition.
We face significant competition throughout the world in each of our reportable segments, which may
increase as certain markets in which we operate continue to expand. Some of our competitors have
greater financial, engineering, manufacturing, and marketing resources than us. In addition, we face
competition from smaller emerging equipment companies whose strategy is to provide a portion of the
products and services we offer, with a focused approach on innovative technology for specialized
markets. New product introductions or enhancements by our competitors could cause a decline in sales
or loss of market acceptance of our existing products. Increased competitive pressure could also lead to
intensified price competition resulting in lower margins. Our failure to compete successfully with these
other companies would seriously harm our business.
We depend on a limited number of customers, located primarily in a limited number of regions, which operate
in highly concentrated industries.
Our customer base is and has been highly concentrated. Orders from a relatively limited number of
customers have accounted for, and likely will continue to account for, a substantial portion of our net
sales, which may lead customers to demand pricing and other terms less favorable to us. Based on net
sales, our five largest customers accounted for 34%, 41%, and 55% of our total net sales for the years
ended 2012, 2011 and 2010, respectively. Customer consolidation activity involving some of our largest
customers could result in an even greater concentration of our sales in the future.
If a principal customer discontinues its relationship with us or suffers economic setbacks, our business,
financial condition, and operating results could be materially and adversely affected. Our ability to
increase sales in the future will depend in part upon our ability to obtain orders from new customers.
21
We cannot be certain that we will be able to do so. In addition, because a relatively small number of
large manufacturers, many of whom are our customers, dominate the industries in which they operate,
it may be especially difficult for us to replace these customers if we lose their business. A substantial
portion of orders in our backlog are orders from our principal customers.
In addition, a substantial investment is required by customers to install and integrate capital equipment
into a production line. As a result, once a manufacturer has selected a particular vendor’s capital
equipment, we believe that the manufacturer generally relies upon that equipment for the specific
production line application and frequently will attempt to consolidate its other capital equipment
requirements with the same vendor. Accordingly, if a customer selects a competitor’s product over ours
for technical superiority or other reasons, we could experience difficulty selling to that customer for a
significant period of time.
Furthermore, we do not have long-term contracts with our customers. As a result, our agreements with
our customers do not provide any assurance of future sales and we are exposed to competitive price
pressure on each new order we attempt to obtain. Our failure to obtain new sales orders from new or
existing customers would have a negative impact on our results of operations.
Our customer base is also highly concentrated in terms of geography, and the majority of our sales are
to customers located in a limited number of countries. In 2012, 55% of our total net sales were to
customers located in China, Taiwan and South Korea alone. Dependence upon sales emanating from a
limited number of regions increases our risk of exposure to local difficulties and challenges, such as
those associated with regional economic downturns, political instability, fluctuating currency exchange
rates, natural disasters, social unrest, pandemics, terrorism or acts of war. In addition, we may
encounter challenges associated with political and social attitudes, laws, rules, regulations and policies
within these countries that favor domestic companies over non-domestic companies, including
customer- or government-supported efforts to promote the development and growth of local
competitors. Our reliance upon customer demand arising primarily from a limited number of countries
could materially adversely impact our future results of operations.
Our sales cycle is long and unpredictable.
Historically, we have experienced long and unpredictable sales cycles (the period between our initial
contact with a potential customer and the time when we recognize revenue from that customer). Our
sales cycle can range up to twelve months or longer. The timing of an order often depends on the
capital expenditure budget cycle of our customers, which is completely out of our control. In addition,
the time it takes us to build a product to customer specifications typically ranges from one to six
months. When coupled with the fluctuating amount of time required for shipment, installation and final
acceptance, our sales cycles often vary widely, and variations in length of this period can cause further
fluctuations in our operating results. As a result of our lengthy sales cycle, we may incur significant
research and development expenses and selling and general and administrative expenses before we
generate revenues for these products. We may never generate the anticipated revenues if a customer
cancels or changes plans. Variations in the length of our sales cycle could also cause our sales and,
therefore, our cash flow and net income to fluctuate widely from period to period.
22
Our material weaknesses in our internal control which have impeded, and may continue to impede, our ability
to file timely and accurate periodic reports may cause us to incur significant additional costs and may
continue to affect our stock price.
As a public company, we are required to file annual and quarterly periodic reports containing our
financial statements with the SEC within prescribed time periods. As part of the NASDAQ stock
exchange listing requirements, we are also required to provide our periodic reports, or make them
available, to our stockholders within prescribed time periods. We have not been able to, and may
continue to be unable to, produce timely financial statements or file these financial statements as part
of a periodic report in a timely manner with the SEC or in compliance with the NASDAQ stock
exchange listing requirements.
Until we complete these remaining filings, we expect to continue to face many of the risks and
challenges we have experienced during our extended filing delay period, including:
• continued concern on the part of customers, partners, investors, and employees about our financial
condition and extended filing delay status, including potential loss of business opportunities;
• additional significant time and expense required to complete our remaining filings and the process of
maintaining the listing of our common stock on NASDAQ beyond the significant time and expense
we have already incurred in connection with our accounting review to date;
• continued distraction of our senior management team and our board of directors as we work to
complete our remaining filings;
• limitations on our ability to raise capital and make acquisitions; and
• general reputational harm as a result of the foregoing.
If we continue to be unable to issue our financial statements in a timely manner, or if we are not able
to obtain the required audit or review of our financial statements by our independent registered public
accounting firm in a timely manner, we will not be able to comply with the periodic reporting
requirements of the SEC and the listing requirements of the NASDAQ stock exchange. We have been
notified by the NASDAQ stock exchange that our common stock listing on the NASDAQ stock
exchange could be suspended or terminated on or after November 4, 2013 if we have not filed all of
our outstanding periodic reports with the SEC by that date. If our common stock listing on the
NASDAQ stock exchange is suspended or terminated, or if our stock is removed as a component of
certain stock market indices, our stock price could materially suffer. In addition, the Company or
members of our management could be subject to investigation and sanction by the SEC and other
regulatory authorities. Any or all of the foregoing could result in the commencement of stockholder
lawsuits against the Company. Any such litigation, as well as any proceedings that could in the future
arise as a result of our filing delay and the circumstances which gave rise to it, may be time consuming
and expensive, may divert management attention from the conduct of our business, could have a
material adverse effect on our business, financial condition, and results of operations, and may expose
us to costly indemnification obligations to current or former officers, directors, or other personnel,
regardless of the outcome of such matter, which may not be adequately covered by insurance.
The price of our common shares may be volatile and could decline significantly.
The stock market in general and the market for technology stocks in particular, has experienced
volatility that has often been unrelated to the operating performance of companies. If these market or
industry-based fluctuations continue, the trading price of our common shares could decline significantly
independent of our actual operating performance, and shareholders could lose all or a substantial part
23
of their investment. The market price of our common shares could fluctuate significantly in response to
several factors, including among others:
• general stock market conditions and uncertainty, such as those occasioned by a global liquidity crisis,
negative financial news, and a failure of large financial institutions;
• receipt of substantial orders or cancellations for our products;
• actual or anticipated variations in our results of operations;
• announcements of financial developments or technological innovations;
• our failure to meet the performance estimates of investment research analysts;
• changes in recommendations and/or financial estimates by investment research analysts;
• strategic transactions, such as acquisitions, divestitures or spin-offs;
• the occurrence of major catastrophic events;
• if we continue to be unable to file our required periodic reports in a timely manner with the SEC;
• if our stock is suspended or terminated from trading on the NASDAQ stock exchange; and
• if our stock is removed as a component from certain stock market indices.
Significant price and value fluctuations have occurred with respect to the publicly traded securities of
the Company and technology companies generally. The price of our common shares is likely to be
volatile in the future. In the past, securities class action litigation often has been brought against a
company following periods of volatility in the market price of its securities. If similar litigation were
pursued against us, it could result in substantial costs and a diversion of management’s attention and
resources, which could materially and adversely affect our results of operations, financial condition and
liquidity.
Our inability to attract, retain, and motivate key employees could have a material adverse effect on our
business.
Our success depends upon our ability to attract, retain, and motivate key employees, including those in
executive, managerial, engineering and marketing positions, as well as highly skilled and qualified
technical personnel and personnel to implement and monitor our financial and managerial controls and
reporting systems. Attracting, retaining, and motivating such qualified personnel may be difficult due to
challenging industry conditions, competition for such personnel by other technology companies,
consolidations and relocations of operations and workforce reductions. While we have entered into
Employment Agreements with certain key personnel, our inability to attract, retain, and motivate key
personnel could have a material adverse effect on our business, financial condition or operating results.
We are subject to foreign currency exchange risks.
We are exposed to foreign currency exchange rate risks that are inherent in our anticipated sales, sales
commitments and assets and liabilities that are denominated in currencies other than the United States
dollar. Although we attempt to mitigate our exposure to fluctuations in currency exchange rates,
hedging activities may not always be available or adequate to eliminate, or even mitigate, the impact of
our exchange rate exposure. Failure to sufficiently hedge or otherwise manage foreign currency risks
properly could materially and adversely affect our revenues and gross margins.
24
The enforcement and protection of our intellectual property rights may be expensive and could divert our
limited resources.
Our success depends in part upon the protection of our intellectual property rights. We rely primarily
on patent, copyright, trademark and trade secret laws, as well as nondisclosure and confidentiality
agreements and other methods, to protect our proprietary information, technologies and processes. We
own various United States and international patents and have additional pending patent applications
relating to certain of our products and technologies. The process of seeking patent protection is lengthy
and expensive, and we cannot be certain that pending or future applications will actually result in
issued patents or that issued patents will be of sufficient scope or strength to provide meaningful
protection or commercial advantage. In addition, our intellectual property rights may be circumvented,
invalidated or rendered obsolete by the rapid pace of technological change. Policing unauthorized use
of our products and technologies is difficult and time consuming. Furthermore, the laws of other
countries may less effectively protect our proprietary rights than U.S. laws. Our outsourcing strategy
requires that we share certain portions of our technology with our outsourcing partners, which poses
additional risks of infringement and trade secret misappropriation. Infringement of our rights by a third
party, possibly for purposes of developing and selling competing products, could result in
uncompensated lost market and revenue opportunities. Similar exposure could result in the event that
former employees seek to compete with us, through their unauthorized use of our intellectual property
and proprietary information. We cannot be certain that the steps we have taken will prevent the
misappropriation or unauthorized use of our proprietary information and technologies, particularly in
foreign countries where the laws may not protect our proprietary intellectual property rights as fully or
as readily as United States laws. Further, we cannot be certain that the laws and policies of any
country, including the United States, with respect to intellectual property enforcement or licensing will
not be changed in a way detrimental to the sale or use of our products or technology.
We may need to litigate to enforce our intellectual property rights, protect our trade secrets or
determine the validity and scope of proprietary rights of others. As a result of any such litigation, we
could lose our ability to enforce one or more patents or incur substantial unexpected operating costs.
Any action we take to enforce our intellectual property rights could be costly and could absorb
significant management time and attention, which, in turn, could negatively impact our operating
results. In addition, failure to protect our trademark rights could impair our brand identity.
We may be subject to claims of intellectual property infringement by others.
From time to time we have received communications from other parties asserting the existence of
patent or other rights which they believe cover certain of our products. We also periodically receive
notice from customers who believe that we are required to indemnify them for damages they may incur
related to infringement claims made against these customers by third parties. Our customary practice is
to evaluate such assertions and to consider the available alternatives, including whether to seek a
license, if appropriate. However, we cannot ensure that licenses can be obtained or, if obtained, will be
on acceptable terms or that costly litigation or other administrative proceedings will not occur. If we
are not able to resolve a claim, negotiate a settlement of the matter, obtain necessary licenses on
commercially reasonable terms, and/or successfully prosecute or defend our position, our business,
financial condition, and results of operations could be materially and adversely affected.
If we are subject to cyber-attacks we could incur substantial costs and, if such attacks are successful, could
result in significant liabilities, reputational harm and disruption of our operations.
We manage, store and transmit various proprietary information and sensitive data relating to our
operations. We may be subject to breaches of the information technology systems we use for these
purposes. Experienced computer programmers and hackers may be able to penetrate our network
security and misappropriate or compromise our confidential information or those of third parties,
25
create system disruptions, or cause shutdowns. Computer programmers and hackers also may be able to
develop and deploy viruses, worms, and other malicious software programs that attack our systems or
our products, or that otherwise exploit any security vulnerabilities.
The costs to address the foregoing security problems and security vulnerabilities before or after a cyberincident could be significant. Our remediation efforts may not be successful and could result in
interruptions, delays, or cessation of service, and loss of existing or potential customers that may
impede our sales, manufacturing, distribution, or other critical functions. In addition, breaches of our
security measures and the unapproved dissemination of proprietary information or sensitive data about
us or our customers or other third parties, could expose us, our customers, or other third parties to a
risk of loss or misuse of this information, result in litigation and potential liability for us, damage our
reputation, or otherwise harm our business.
Our acquisition strategy subjects us to risks associated with evaluating and pursuing these opportunities and
integrating these businesses.
We have considered numerous acquisition opportunities and completed several significant acquisitions
in the past. We may consider acquisitions of, or investments in, other businesses in the future.
Acquisitions involve numerous risks, many of which are unpredictable and beyond our control,
including:
• difficulties and increased costs in integrating the personnel, operations, technologies and products of
acquired companies;
• diversion of management’s attention while evaluating, pursuing, and integrating the business to be
acquired;
• potential loss of key employees of acquired companies, especially if a relocation or change in
responsibilities is involved;
• difficulties in managing geographically dispersed operations in a cost-effective manner;
• lack of synergy or inability to realize expected synergies;
• unknown, underestimated and/or undisclosed commitments or liabilities;
• increased amortization expense relating to intangible assets; and
• the potential impairment and write-down of amounts capitalized as intangible assets and goodwill as
part of the acquisition, as a result of technological advancements or worse-than-expected
performance by the acquired company.
Our inability to effectively manage these risks could materially and adversely affect our business,
financial condition, and operating results. We are subject to many of these risks in connection with our
recent acquisition of Synos.
In addition, if we issue equity securities to pay for an acquisition, the ownership percentage of our
then-existing shareholders would be reduced and the value of the shares held by these shareholders
could be diluted, which could adversely affect the price of our stock. If we use cash to pay for an
acquisition, the payment could significantly reduce the cash that would be available to fund our
operations or other purposes.
We may be required to take additional impairment charges for goodwill and indefinite-lived intangible assets
or definite-lived intangible and long-lived assets.
We are required to assess goodwill and indefinite-lived intangible assets annually for impairment, or on
an interim basis whenever certain events occur or circumstances change, such as an adverse change in
26
business climate or a decline in the overall industry, that would more likely than not reduce the fair
value of a reporting unit below its carrying amount. We are also required to test our definite-lived
intangible and long-lived assets, including acquired intangible assets and property, plant and equipment,
for recoverability and impairment whenever there are indicators of impairment, such as an adverse
change in business climate.
As part of our long-term strategy, we may pursue future acquisitions of other companies or assets
which could potentially increase our goodwill and intangible and long-lived assets. Adverse changes in
business conditions could materially impact our estimates of future operations and result in additional
impairment charges to these assets. If our goodwill or intangible and long-lived assets were to become
further impaired, our results of operations could be materially and adversely affected.
Changes in accounting pronouncements or taxation rules or practices may adversely affect our financial
results.
Changes in accounting pronouncements or taxation rules or practices can have a significant effect on
our reported results. New accounting pronouncements or taxation rules and varying interpretations of
accounting pronouncements or taxation practices have occurred and may occur in the future. New
rules, changes to existing rules, if any, or the questioning of current practices may adversely affect our
reported financial results or change the way we conduct our business.
We are subject to internal control evaluations and attestation requirements of Section 404 of the SarbanesOxley Act and any delays or difficulty in satisfying these requirements or negative reports concerning our
internal controls could adversely affect our future results of operations and our stock price.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we must include in our Annual Report on
Form 10-K a report of management on the effectiveness of our internal control over financial
reporting. Ongoing compliance with this requirement is complex, costly, time-consuming and is subject
to significant judgment. Our most recent assessment, testing, and evaluation resulted in our conclusion
that our internal controls over financial reporting were not effective. While we have taken steps to
address the deficiency, we cannot predict when the deficiency will be remediated or the outcome of our
testing in future periods. If our internal controls are ineffective in future periods or if our management
does not timely assess the adequacy of such internal controls, we could be subject to regulatory
sanctions, the public’s perception of our Company may decline and our financial results or the market
price of our shares could be adversely affected.
We are subject to risks of non-compliance with environmental, health and safety regulations.
We are subject to environmental, health and safety regulations in connection with our business
operations, including but not limited to regulations related to the development, manufacture, and use
of our products. Failure or inability to comply with existing or future environmental and safety
regulations could result in significant remediation liabilities, the imposition of fines and/or the
suspension or termination of development, manufacture, or use of certain of our products, each of
which could have a material adverse effect on our business, financial condition, and results of
operations.
We have significant operations in locations which could be materially and adversely impacted in the event of a
natural disaster or other significant disruption.
Our operations in the U.S., the Asia-Pacific region and in other areas could be subject to natural
disasters or other significant disruptions, including earthquakes, tsunamis, fires, hurricanes, floods,
water shortages, other extreme weather conditions, medical epidemics, acts of terrorism, power
shortages and blackouts, telecommunications failures, and other natural and manmade disasters or
27
disruptions. Two such occurrences in 2011 include the earthquake and tsunami in Japan and the severe
flooding in Thailand. In the event of such a natural disaster or other disruption, we could experience
disruptions or interruptions to our operations or the operations of our suppliers, distributors, resellers
or customers; destruction of facilities; and/or loss of life, all of which could materially increase our costs
and expenses and materially and adversely affect our business, revenue and financial condition.
We have adopted certain measures that may have anti-takeover effects which may make an acquisition of our
Company by another company more difficult.
We have adopted, and may in the future adopt, certain measures that may have the effect of delaying,
deferring or preventing a takeover or other change in control of our Company, any of which a holder
of our common stock might not consider in the holder’s best interest. These measures include:
• ‘‘blank check’’ preferred stock;
• classified board of directors; and
• certain certificate of incorporation and bylaws provisions.
Our board of directors has the authority to issue up to 500,000 shares of preferred stock and to fix the
rights (including voting rights), preferences and privileges of these shares (‘‘blank check’’ preferred).
Such preferred stock may have rights, including economic rights, senior to our common stock. As a
result, the issuance of the preferred stock could have a material adverse effect on the price of our
common stock and could make it more difficult for a third party to acquire a majority of our
outstanding common stock.
Our board of directors is divided into three classes with each class serving a staggered three-year term.
The existence of a classified board will make it more difficult for our shareholders to change the
composition (and therefore the policies) of our board of directors in a relatively short period of time.
We have adopted certain certificate of incorporation and bylaws provisions which may have
anti-takeover effects. These include: (a) requiring certain actions to be taken at a meeting of
shareholders rather than by written consent, (b) requiring a super-majority of shareholders to approve
certain amendments to our bylaws, (c) limiting the maximum number of directors, and (d) providing
that directors may be removed only for ‘‘cause.’’ These measures and those described above may have
the effect of delaying, deferring or preventing a takeover or other change in control of Veeco that a
holder of our common stock might consider in its best interest.
In addition, we are subject to the provisions of Section 203 of the General Corporation Law of the
State of Delaware, which prohibits a Delaware corporation from engaging in any business combination,
including mergers and asset sales, with an interested stockholder (generally, a 15% or greater
stockholder) for a period of three years after the date of the transaction in which the person became
an interested stockholder, unless the business combination is approved in a prescribed manner. The
operation of Section 203 may have anti-takeover effects, which could delay, defer or prevent a takeover
attempt that a holder of our common stock might consider in its best interest.
New regulations related to conflict minerals will force us to incur additional expenses, and may make our
supply chain more complex, and may result in damage to our relationships with customers.
On August 22, 2012, under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,
or the Dodd-Frank Act, the SEC adopted new requirements for companies that manufacture products
that contain certain minerals and metals, known as conflict minerals. These rules require public
companies to perform diligence and to report annually to the SEC whether such minerals originate
from the Democratic Republic of Congo and adjoining countries. The implementation of these new
requirements could adversely affect the sourcing, availability and pricing of minerals we use in the
28
manufacture of our products. In addition, we will incur additional costs to comply with the disclosure
requirements, including costs related to determining the source of any of the relevant minerals used in
our products. Given the complexity of our supply chain, we may not be able to ascertain the origins of
these minerals used in our products through the due diligence procedures that we implement, which
may harm our reputation. We may also face difficulties in satisfying customers who may require that
our products be certified as conflict mineral free, which could harm our relationships with these
customers and lead to a loss of revenue. These new requirements could limit the pool of suppliers that
can provide conflict-free minerals, and we may be unable to obtain conflict-free minerals at competitive
prices, which could increase our costs and adversely affect our manufacturing operations and our
profitability.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
Our corporate headquarters and our principal product development and marketing, manufacturing,
research and development and training facilities, as well as the approximate size and the segments
which utilize such facilities, are:
Approximate Size
(sq. ft.)
Owned Facilities Location
Mortgaged
Plainview, NY . . . . . . . . .
80,000
No
Somerset, NJ . . . . . . . . .
Somerset, NJ . . . . . . . . .
St. Paul, MN(1) . . . . . . .
Yongin-city, South Korea .
80,000
38,000
111,000
56,000
No
No
Yes
No
.
.
.
.
Leased Facilities Location
Camarillo, CA . . . . .
Fort Collins, CO . . . .
Peabody, MA . . . . . .
Somerset, NJ . . . . . .
Poughkeepsie, NY . .
Kingston, NY . . . . . .
Shanghai, China(2) . .
Hsinchu City, Taiwan
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Approximate Size
(sq. ft.)
Lease
Expires
23,000
26,000
30,000
14,000
9,000
44,000
18,700
13,500
2015
2018
2014
2014
2015
2018
2014
2015
Use
Data Storage and
Corporate Headquarters
LED & Solar
LED & Solar
LED & Solar
Sales Office, Customer
Training Center & R&D
Center
Use
Data Storage
Data Storage
Held for Sublease
LED & Solar
LED & Solar
LED & Solar
Customer Training Center
Sales Office, Process
Development, & Customer
Training Center
(1) Our LED & Solar segment utilizes approximately 95,000 square feet of this facility. The
balance is available for expansion.
(2) We have the option to renew this lease for two consecutive two year terms and also have
the option to purchase this facility.
29
The St. Paul, Minnesota facility is subject to a mortgage which, as of December 31, 2012, had an
outstanding balance of $2.4 million. We also lease small offices in Santa Clara, California and Edina,
Minnesota for sales and service. Our foreign sales and service subsidiaries lease office space in
Germany, Japan, South Korea, Malaysia, Singapore, Thailand, Philippines and China. We believe our
facilities are adequate to meet our current needs.
Item 3.
Legal Proceedings
Environmental
Under certain circumstances, we could have been obligated to pay up to $250,000 in connection with
the implementation of a comprehensive plan of environmental remediation at our Plainview, New York
facility. We are indemnified by the former owner for any liabilities we may incur in excess of $250,000
with respect to any such remediation. No comprehensive plan has been required to date. Even without
consideration of such indemnification, we did not believe that any material loss or expense was
probable in connection with any remediation plan that may be proposed. We reevaluated this exposure
and concluded that there is no longer any potential exposure from this matter.
We are aware that petroleum hydrocarbon contamination has been detected in the soil at the site of a
facility formerly leased by us in Santa Barbara, California. We have been indemnified for any liabilities
we may incur which arise from environmental contamination at the site. Even without consideration of
such indemnification, we do not believe that any material loss or expense is probable in connection
with any such liabilities.
The former owner of the land and building in Santa Barbara, California in which our former Metrology
operations were located (which business was sold to Bruker Corporation (‘‘Bruker’’) on October 7,
2010), has disclosed that there are hazardous substances present in the ground under the building.
Management believes that the comprehensive indemnification clause that was part of the purchase
contract relating to the purchase of such land provides adequate protection against any environmental
issues that may arise. We have provided Bruker with similar indemnification as part of the sale.
Non-Environmental
Veeco and certain other parties were named as defendants in a lawsuit filed on April 25, 2013 in the
Superior Court of California, County of Sonoma. The plaintiff in the lawsuit, Patrick Colbus, seeks
unspecified damages and asserts claims that he suffered burns and other injuries while he was cleaning
a molecular beam epitaxy system alleged to have been manufactured by Veeco. The lawsuit alleges,
among other things, that the molecular beam epitaxy system was defective and that Veeco failed to
adequately warn of the potential risks of the system. Although Veeco believes this lawsuit is without
merit and intends to defend vigorously against the claims, and although Veeco maintains insurance
which may apply to this matter, the lawsuit could result in substantial costs, divert management’s
attention and resources from our operations and negatively affect our public image and reputation.
We are involved in various other legal proceedings arising in the normal course of our business. We do
not believe that the ultimate resolution of these matters will have a material adverse effect on our
consolidated financial position, results of operations or cash flows.
Item 4.
Mine Safety Disclosures
Not Applicable
30
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Our common stock is quoted on The NASDAQ National Market under the symbol ‘‘VECO.’’ The 2012
and 2011 high and low closing bid prices by quarter are as follows:
2012
First Quarter . . .
Second Quarter .
Third Quarter . .
Fourth Quarter .
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2011
High
Low
High
Low
$33.40
36.97
38.11
31.52
$21.46
26.54
30.00
26.89
$52.70
57.59
47.21
29.20
$42.82
46.47
24.40
20.80
On October 24, 2013, the closing bid price for our common stock on the NASDAQ National Market
was $31.08 and we had 120 shareholders of record.
We have not paid dividends on our common stock. The Board of Directors will determine future
dividend policy based on our consolidated results of operations, financial condition, capital
requirements and other circumstances.
31
Stock Performance Graph
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Veeco Instruments Inc., the S&P Smallcap 600 Index, the PHLX Semiconductor Index,
and the RDG MidCap Technology Index
$300
$250
$200
$150
$100
$50
$0
12/07
12/08
12/09
Veeco Instruments Inc.
*
12/10
S&P Smallcap 600
12/11
PHLX Semiconductor
12/12
29OCT201309143566
RDG MidCap Technology
$100 invested on 12/31/07 in stock or index, including reinvestment of dividends. Fiscal year ending
December 31.
Copyright 2013 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
ASSUMES $100 INVESTED ON DEC. 31, 2007
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DEC. 31
Veeco Instruments Inc. . .
S&P Smallcap 600 . . . . .
PHLX Semiconductor . . .
RDG MidCap Technology
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32
2007
2008
2009
2010
2011
2012
100.00
100.00
100.00
100.00
37.96
68.93
64.12
48.67
197.84
86.55
101.17
80.21
257.25
109.32
115.04
101.25
124.55
110.43
116.92
86.44
176.59
128.46
139.17
86.44
Item 6.
Selected Consolidated Financial Data
The financial data set forth below should be read in conjunction with ‘‘Management’s Discussion and
Analysis of Financial Condition and Results of Operations’’ and with our Consolidated Financial
Statements and notes thereto included elsewhere in this Form 10-K.
2012
Year ended December 31,
2011
2010
2009
(in thousands, except per share data)
2008
Statement of Operations Data:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$516,020
$979,135
$930,892
$282,262
Operating income (loss) from continuing
operations . . . . . . . . . . . . . . . . . . . . . . . . .
37,212
276,259
303,253
7,631
(44,055)
26,529
190,502
277,176
(1,777)
(48,748)
4,399
—
(62,515)
—
84,584
—
(13,855)
(65)
(26,673)
(230)
Income (loss) from continuing operations net
of income taxes . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations net
of income taxes . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to noncontrolling interest .
Net income (loss) attributable to Veeco . . . . . .
$ 30,928
$127,987
$
0.69
0.11
$
Income (loss) . . . . . . . . . . . . . . . . . . . . . . .
$
0.80
$
Diluted :
Continuing operations . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . .
$
0.68
0.11
$
Income (loss) . . . . . . . . . . . . . . . . . . . . . . .
$
0.79
$
Income (loss) per common share attributable
to Veeco:
Basic:
Continuing operations . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . .
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance Sheet Data:
Cash and cash equivalents . . . . . .
Short-term investments . . . . . . . .
Restricted cash . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . .
Long-term debt (including current
installments) . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . .
38,477
39,051
$361,760
4.80 $
(1.57)
$302,067
$ (15,567) $ (75,191)
7.02
2.14
$
(0.05) $
(0.43)
(1.55)
(0.85)
$
9.16
$
(0.48) $
(2.40)
4.63 $
(1.52)
6.52
1.99
$
(0.05) $
(0.43)
(1.55)
(0.85)
8.51
$
(0.48) $
(2.40)
3.23
3.11
39,658
41,155
$
39,499
42,514
32,628
32,628
31,347
31,347
2012
2011
December 31,
2010
(in thousands)
2009
2008
.
.
.
.
.
.
$384,557
192,234
2,017
632,197
55,828
937,304
$217,922
273,591
577
587,076
55,828
936,063
$ 245,132
394,180
76,115
640,139
52,003
1,148,034
$148,500
135,000
—
317,317
52,003
605,372
$102,521
—
—
168,528
51,741
429,541
........
........
2,406
811,212
2,654
760,520
104,021
762,512
101,176
359,059
98,526
225,026
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33
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
Veeco Instruments Inc. (together with its consolidated subsidiaries, ‘‘Veeco’’, the ‘‘Company’’, ‘‘we’’,
‘‘us’’, and ‘‘our’’, unless the context indicates otherwise) creates Process Equipment that enables
technologies for a cleaner and more productive world. We design, manufacture and market equipment
primarily sold to make LEDs and hard-disk drives, as well as for concentrator photovoltaics, power
semiconductors, wireless components, and micro-electromechanical systems (‘‘MEMS’’).
Veeco develops highly differentiated, ‘‘best-in-class’’ Process Equipment for critical performance steps.
Our products feature leading technology, low cost-of-ownership and high throughput. Core
competencies in advanced thin film technologies, over 200 patents, and decades of specialized process
know-how helps us to stay at the forefront of these demanding industries.
Veeco’s LED & Solar segment designs and manufactures metal organic chemical vapor deposition
(‘‘MOCVD’’) and molecular beam epitaxy (‘‘MBE’’) systems and components sold to manufacturers of
LEDs, wireless components, power semiconductors, and concentrator photovoltaics, as well as to R&D
applications.
Veeco’s Data Storage segment designs and manufactures systems used to create thin film magnetic heads
(‘‘TFMH’’s) that read and write data on hard disk drives. These include ion beam etch, ion beam
deposition, diamond-like carbon, physical vapor deposition, chemical vapor deposition, and slicing,
dicing and lapping systems. While our systems are primarily sold to hard drive customers, they also
have applications in optical coatings, MEMS and magnetic sensors, and extreme ultraviolet (‘‘EUV’’)
lithography.
As of September 30, 2013, Veeco’s approximately 780 employees support our customers through
product and process development, training, manufacturing, and sales and service sites in the U.S.,
South Korea, Taiwan, China, Singapore, Japan, Europe and other locations.
Veeco Instruments Inc. was organized as a Delaware corporation in 1989.
Summary of Results for 2012
Selected financial highlights include:
• Revenue decreased 47.3% to $516.0 million in 2012 from $979.1 million in 2011. LED & Solar
revenues decreased 56.1% to $363.2 million from $827.8 million in 2011. Data Storage revenues
increased 1.0% to $152.8 million from $151.3 million in 2011;
• Orders were down 52.1%, to $391.9 million in 2012, compared to $817.9 million in 2011;
• Our gross margin decreased, to 41.7%, in 2012 compared to 48.4% for 2011. Gross margins in
LED & Solar decreased from 48.0% in 2011 to 40.9%. Data Storage gross margins also decreased
from 50.7% to 43.7%.
• Our selling, general and administrative expenses decreased to $73.1 million, from $95.1 million in
2011. Selling, general and administrative expenses were 14.2% of net sales in 2012, compared with
9.7% in 2011;
• Our research and development expenses decreased to $95.2 million from $96.6 million in 2011.
Research and development expenses were 18.4% of net sales in 2012, compared with 9.9% in 2011;
• Net income from continuing operations in 2012 was $26.5 million compared to $190.5 million in
2011;
• Diluted net income from continuing operations per share was $0.68 compared to $4.63 in 2011.
34
Business Highlights of 2012
Veeco’s 2012 revenues of $516.0 million were the lowest level since 2009, primarily due to the
equipment overcapacity situation in the LED industry. All of Veeco’s end markets were negatively
impacted by the weak global economy and our customers’ hesitancy to add manufacturing capacity. A
bright spot for the Company in 2012 was the growth of our services business from $97 million to
$123 million, a 27% increase. One of Veeco’s top goals for 2012 was to grow our services business in
both the LED & Solar and Data Storage segments, as we see this as a way to not only grow revenues
but to also improve customer satisfaction. Other key accomplishments for the Company in 2012
included:
• We maintained or gained market share in all of our core technologies;
• We penetrated new markets (such as MEMS, power electronics, and OLED) and shipped tools to
new customers in all key regions;
• We delivered on our target for shipments, met our annual guidance of more than $500 million in
revenue and generated approximately $87 million in cash, cash equivalents and short-term
investments;
• We effectively managed operations and moved quickly in response to changing business conditions.
Outlook
Through the first nine months of 2013, we have not seen any clear signs that customer overcapacity in
our MOCVD business and weak end market demand in our Data Storage segment will improve in the
near term. Our customers continue to guard spending tightly and limit capacity expansions. The LED
industry is still in an equipment digestion period and near term visibility remains limited. With few
MOCVD deals available, we have also experienced increased pricing pressure. In our Data Storage
segment, our hard drive customers are experiencing weak end market demand which has resulted in
excess manufacturing capacity, therefore they are only making select technology purchases. While our
overall bookings have continued to decline in 2013, bookings in our Data Storage segment have been
relatively flat for the first nine months of 2013 compared to the first nine months of 2012.
While the Company has been actively working to reduce costs during this extended business downturn,
pricing pressure and persistent low volumes in MOCVD represent significant headwinds and have
caused the Company to move to a loss in 2013.
Our outlook discussion above constitutes ‘‘forward-looking statements’’ within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. Our expectations regarding future results are subject to risks and uncertainties.
Our actual results may differ materially from those anticipated.
You should not place undue reliance on any forward-looking statements, which speak only as of the
dates they are made.
Results of Operations
Out of Period Adjustment
As a result of our accounting review we identified errors in the consolidated financial statements
related to prior periods. The errors were primarily attributable to the misapplication of U.S. GAAP for
recognizing revenue and related costs under multiple element arrangements and accounting for
warranties. We assessed the materiality of these errors, both quantitatively and qualitatively, and
concluded that these errors were not material, individually or in the aggregate, to our consolidated
financial statements in this or any other prior periods. During the course of our review, we identified
35
net cumulative errors which overstated cumulative net income from continuing operations through
December 31, 2011 by $0.6 million. As a result, in 2012 we recorded adjustments to correct all prior
periods resulting in a decrease in income from continuing operations of $0.6 million.
Years Ended December 31, 2012 and 2011
The following table shows our Consolidated Statements of Income, percentages of sales and
comparisons between 2012 and 2011 (dollars in thousands):
Year ended
December 31,
2012
Dollar and
Percentage Change
Year to Year
2011
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . .
$516,020
300,887
100.0% $979,135
58.3% 504,801
100.0% $(463,115) (47.3)%
51.6% (203,914) (40.4)%
Gross profit . . . . . . . . . . . . . . . . . . . . . . . .
215,133
41.7% 474,334
48.4% (259,201) (54.6)%
14.2% 95,134
18.4% 96,596
1.0%
4,734
0.7%
1,288
0.3%
584
(0.1)%
(261)
9.7% (22,024) (23.2)%
9.9%
(1,443) (1.5)%
0.5%
174
3.7%
0.1%
2,525 196.0%
0.1%
751 128.6%
(0.0)%
(137) 52.5%
20.2%
Operating expenses (income):
Selling, general and administrative
Research and development . . . . . .
Amortization . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . .
Asset impairment . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . .
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.
73,110
95,153
4,908
3,813
1,335
(398)
Total operating expenses . . . . . . . . . . . . . . .
177,921
34.5% 198,075
Operating income . . . . . . . . . . . . . . . . . . . .
37,212
7.2% 276,259
28.2% (239,047) (86.5)%
Interest income (expense), net . . . . . . . . . . .
Loss on extinguishment of debt . . . . . . . . . .
974
—
0.2%
0.0%
(0.1)%
(0.3)%
Income from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . .
38,186
11,657
7.4% 272,086
2.3% 81,584
27.8% (233,900) (86.0)%
8.3% (69,927) (85.7)%
Income from continuing operations . . . . . . .
26,529
5.1% 190,502
19.5% (163,973) (86.1)%
Discontinued operations:
Income (loss) from discontinued
operations before income taxes . . . . . . .
Income tax provision (benefit) . . . . . . . . .
6,269
1,870
1.2% (91,885)
0.4% (29,370)
(9.4)%
(3.0)%
98,154
31,240
*
*
Income (loss) from discontinued operations .
4,399
0.9% (62,515)
(6.4)%
66,914
*
Net income . . . . . . . . . . . . . . . . . . . . . . . . .
$ 30,928
6.0% $127,987
13.1% $ (97,059) (75.8)%
*
Not Meaningful
36
(824)
(3,349)
(20,154) (10.2)%
1,798
3,349
*
*
Net Sales and Orders
Net sales of $516.0 million for the year ended December 31, 2012, were down 47.3% compared to
2011. The following is an analysis of sales and orders by segment and by region (dollars in thousands):
For the year ended
December 31,
2012
2011
Dollar and
Percentage
Change
Year to Year
Segment Analysis
LED & Solar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$363,181
152,839
$827,797
151,338
$(464,616) (56.1)%
1,501
1.0%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$516,020
$979,135
$(463,115) (47.3)%
Regional Analysis
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United States(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe, Middle East and Africa . . . . . . . . . . . . . . . . . . . .
$390,995
83,317
41,708
$820,883
100,635
57,617
$(429,888) (52.4)%
(17,318) (17.2)%
(15,909) (27.6)%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$516,020
$979,135
$(463,115) (47.3)%
(1) Less than 1%, of sales included within the United States caption above has been derived from
other regions within the Americas.
By segment, LED & Solar sales decreased 56.1% in 2012 primarily due to a 62.0% decrease in
MOCVD reactor shipments from the prior year as a result of industry overcapacity following over two
years of strong customer investments. Data Storage sales increased slightly by 1.0%, primarily due to an
increase in shipments to replace equipment destroyed by flooding in customer facilities in Thailand
offset by reduced demand due to our customers’ hesitancy to add manufacturing capacity during weak
global economic conditions. LED & Solar sales represented 70.4% of total sales for the year ended
December 31, 2012, down from 84.5% in the prior year. Data Storage sales accounted for 29.6% of net
sales, up from 15.5% in the prior year. By region, net sales decreased by 52.4% in Asia Pacific
(‘‘APAC’’), primarily due to lower MOCVD sales to LED customers. Sales in the Americas and
Europe, Middle East and Africa (‘‘EMEA’’) also decreased 17.2% and 27.6%, respectively, due to
reduced end market demand resulting from the weak global economy. We believe that there will
continue to be year-to-year variations in the geographic distribution of sales.
Orders in 2012 decreased 52.1% compared to 2011, primarily attributable to a 53.1% decrease in
LED & Solar orders that were principally driven by a decline in MOCVD bookings due to industry
overcapacity. After hitting a peak in the second quarter of 2011, Veeco’s bookings slowed dramatically
in the second half of 2011 which continued throughout 2012. Data Storage orders decreased 48.1% as
strong prior year orders from hard drive customers recovering from the flood in Thailand resulted in
those customers being over-invested in capacity. In addition, the industry appears to have frozen
further investments as end-user hard drive demand has slowed.
Our book-to-bill ratio for 2012, which is calculated by dividing orders received in a given time period
by revenue recognized in the same time period, was 0.76 to 1 compared to 0.84 to 1 in 2011. Our
backlog as of December 31, 2012 was $150.2 million, compared to $332.9 million as of December 31,
2011. During the year ended December 31, 2012, we recorded net backlog adjustments of
approximately $58.5 million. The adjustments consisted of $42.0 million related to orders that no longer
met our booking criteria, primarily due to contracts being extended past a twelve month delivery time
frame, and $15.4 million of order cancellations and order adjustments of $1.1 million. For certain sales
arrangements we require a deposit for a portion of the sales price before shipment. As of
December 31, 2012 and 2011, we had deposits of $32.7 million and $57.1 million, respectively.
37
Gross Profit
Year ended
December 31,
2012
2011
(dollars in thousands)
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar and
Percentage Change
Year to Year
$215,133 $474,334 $(259,201) (54.6)%
41.7%
48.4%
Gross profit was $215.1 million or 41.7% for 2012 compared to $474.3 million or 48.4% in 2011. The
weak business environment has caused us to record a total expense for slow moving items in 2012 of
approximately $9.6 million, which negatively impacted our gross margin for 2012.
LED & Solar gross margins decreased to 40.9% from 48.0% in the prior year, primarily due to a
significant decrease in sales volumes, lower average selling prices and fewer final acceptances partially
offset by lower plant and service spending associated with reduced volumes and cost reductions in
response to lower business levels. Data Storage gross margins decreased to 43.7% from 50.7% in the
prior year, primarily due to a sales mix of lower margin products. We anticipate a continuing weak
business environment resulting in persistent selling price pressure in our MOCVD business.
Operating Expenses
Year ended
December 31,
2012
2011
(dollars in thousands)
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . .
Percentage of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar and
Percentage Change
Year to Year
$73,110 $95,134 $(22,024) (23.2)%
14.2%
9.7%
Selling, general and administrative expenses decreased by $22.0 million or 23.2%, from the prior year
primarily due to lower commissions and bonus and profit sharing expenses from the reduced level of
business in each of our segments. In addition our cost control measures put into place throughout the
year resulting in lower personnel-related costs, travel and entertainment expense, professional
consulting fees and other discretionary expenses. Selling, general and administrative expenses were
14.2% of net sales in 2012, compared with 9.7% of net sales in the prior year.
Year ended
December 31,
2012
2011
(dollars in thousands)
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar and
Percentage
Change
Year to Year
$95,153 $96,596 $(1,443) (1.5)%
18.4%
9.9%
Research and development expense decreased $1.4 million or 1.5% from the prior year. The Company
continued to invest, at approximately the prior year levels, in the development of products in areas of
high-growth for end market opportunities in our LED & Solar segment. As a percentage of net sales,
research and development expense increased to 18.4% from 9.9% in the prior year.
Year ended
December 31,
2012
2011
(dollars in thousands)
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar and
Percentage
Change
Year to Year
$4,908 $4,734 $174
1.0%
0.5%
Amortization expense increased $0.2 million from the prior year, primarily due to additional
amortization associated with intangible assets acquired as part of our acquisition of a privately held
38
3.7%
company during the second quarter of 2011, partially offset by certain intangible assets becoming fully
amortized.
Year ended
December 31,
2012
2011
(dollars in thousands)
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar and
Percentage
Change
Year to Year
$3,813 $1,288 $2,525
0.7%
0.1%
196.0%
During 2012, we took measures to improve profitability, including a reduction in discretionary expenses,
realignment of our senior management team and consolidation of certain sales, business and
administrative functions. As a result of these actions, we recorded a $3.8 million restructuring charge
consisting of $3.0 million in personnel severance and related costs, $0.4 million in equity compensation
and related costs and $0.4 million in other severance costs resulting from a headcount reduction of 52
employees. During 2011, we recorded $1.3 million in personnel severance and related costs related to a
companywide reorganization resulting in a headcount reduction of 65 employees. These reductions in
workforce included executives, management, administration, sales and service personnel and
manufacturing employees companywide.
Year ended
December 31,
2012
2011
(dollars in thousands)
Asset Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar and
Percentage
Change
Year to Year
$1,335 $584 $751
0.3% 0.1%
128.6%
During 2012, we recorded an asset impairment charge of $1.3 million related to a license agreement in
our Data Storage segment. During 2011, we recorded a $0.6 million asset impairment charge for
property, plant and equipment related to the discontinuance of a certain product line in our LED &
Solar segment.
Interest Income (Expense), Net
Dollar and
Percentage
Change
Year to Year
(dollars in thousands)
Year ended
December 31,
2012
2011
Interest income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$974 $(824) $1,798
0.2% (0.1)%
*
*
Not Meaningful
Interest income, net for 2012 was $1.0 million, comprised of $2.5 million in cash interest income,
partially offset by $0.2 million in cash interest expense and $1.3 million in non-cash interest expense
relating to net amortization of our short-term investments. Interest expense, net for 2011 was
$0.8 million, comprised of $1.4 million in cash interest expense, $1.9 million in non-cash interest
expense relating to net amortization of our short-term investments and $1.3 million in non-cash interest
expense relating to our convertible debt, which was retired during the first half of 2011 creating a loss
on extinguishment of approximately $3.3 million. Interest expense in 2011 was partially offset by
$3.8 million in interest income earned on our cash and short-term investment balances. The non-cash
interest expense is related to accounting rules that requires a portion of convertible debt to be
allocated to equity in 2011 and accretion of debt discounts and amortization of debt premiums related
to our short-term investments in 2012 and 2011.
39
Income Taxes
Year ended
December 31,
2012
2011
(dollars in thousands)
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar and
Percentage Change
Year to Year
$11,657 $81,584
$(69,927) (85.7)%
30.5%
30.0%
The income tax provision attributable to continuing operations for the year ended December 31, 2012
was $11.7 million or 30.5% of income from continuing operations before income taxes compared to
$81.6 million or 30.0% of income from continuing operations before income taxes in the prior year.
The 2012 provision for income taxes included $8.3 million relating to our foreign operations and
$3.4 million relating to our domestic operations. The 2011 provision for income taxes included
$9.6 million relating to our foreign operations and $72.0 million relating to our domestic operations.
Our 2012 effective tax rate is lower than the statutory rate as a result of the jurisdictional mix of
earnings in our foreign locations and other favorable tax benefits including the Domestic Production
Activities Deduction and an adjustment for the Research and Development Credit related to the filing
of our 2011 Federal income tax return.
During the fourth quarter of 2012, the Company determined that it may not meet the criteria required
to receive a certain incentive tax rate pursuant to a negotiated tax holiday in one foreign jurisdiction.
Although the Company is continuing to negotiate the criteria for the incentive, for financial reporting
purposes the Company has recorded an additional tax provision of $4.0 million which represents the
cumulative effect of calculating the tax provision using the incentive tax rate as compared to the foreign
country’s statutory rate. As such amount is not expected to be paid within twelve months, the Company
has recorded the $4.0 million as a long term taxes payable. If the Company successfully renegotiates
the incentive criteria, this additional tax provision could be reversed as a future benefit in the period in
which the successful negotiations are finalized.
Discontinued Operations
Year ended
December 31,
2012
2011
(dollars in thousands)
Dollar and
Percentage
Change
Year to Year
Income (loss) from discontinued operations before income taxes . . . .
Income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,269
1,870
$(91,885) $98,154
(29,370) 31,240
*
*
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . .
$4,399
$(62,515) $66,914
*
*
Not Meaningful
Discontinued operations represent the results of the operations of our disposed Metrology segment,
which was sold to Bruker on October 7, 2010, and our CIGS solar systems business, which was
discontinued on September 27, 2011, reported as discontinued operations. The 2012 results included a
$1.4 million gain ($1.1 million net of taxes) on the sale of the assets of discontinued segment held for
sale and a $5.4 million gain ($4.1 million net of taxes) associated with the closing of the China Assets
with Bruker. The 2011 results reflect an operational loss before taxes of $1.6 million related to the
Metrology segment and an operational loss before taxes of $90.3 million related to the CIGS solar
systems business.
40
Years Ended December 31, 2011 and 2010
The following table shows our Consolidated Statements of Income, percentages of sales and
comparisons between 2011 and 2010 (dollars in thousands):
Year ended
December 31,
2011
Net sales . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . .
$979,135
504,801
Gross profit . . . . . . . . . . . . . . . . . . . . . .
474,334
Operating expenses (income):
Selling, general and administrative
Research and development . . . . . .
Amortization . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . .
Asset impairment . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
95,134
96,596
4,734
1,288
584
(261)
Dollar and
Percentage Change
Year to Year
2010
100.0% $930,892
51.6% 481,407
48.4%
9.7%
9.9%
0.5%
0.1%
0.1%
(0.0)%
449,485
87,250
56,948
3,703
(179)
—
(1,490)
100.0% $ 48,243
51.7%
23,394
5.2%
4.9%
48.3%
24,849
5.5%
9.4%
6.1%
0.4%
(0.0)%
0.0%
(0.2)%
7,884
39,648
1,031
1,467
584
1,229
9.0%
69.6%
27.8%
*
*
(82.5)%
Total operating expenses . . . . . . . . . . . . .
198,075
20.2%
146,232
15.7%
51,843
35.5%
Operating income . . . . . . . . . . . . . . . . . .
276,259
28.2%
303,253
32.6%
(26,994)
(8.9)%
Interest expense, net . . . . . . . . . . . . . . . .
Loss on extinguishment of debt . . . . . . . .
(824)
(3,349)
(0.1)%
(0.3)%
(6,572)
—
(0.7)%
0.0%
5,748 (87.5)%
(3,349)
*
Income from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . .
272,086
81,584
27.8%
8.3%
296,681
19,505
31.9%
2.1%
(24,595) (8.3)%
62,079 318.3%
Income from continuing operations . . . . .
190,502
19.5%
277,176
29.8%
(86,674) (31.3)%
Discontinued operations:
(Loss) income from discontinued
operations before income taxes . . . . .
Income tax (benefit) provision . . . . . . .
(91,885)
(29,370)
(9.4)% 129,776
(3.0)% 45,192
13.9%
4.9%
(221,661)
(74,562)
*
*
(Loss) income from discontinued
operations . . . . . . . . . . . . . . . . . . . . . .
(62,515)
(6.4)%
9.1%
(147,099)
*
Net income . . . . . . . . . . . . . . . . . . . . . . .
*
$127,987
Not Meaningful
41
84,584
13.1% $361,760
38.9% $(233,773) (64.6)%
Net Sales and Orders
Net sales of $979.1 million for the year ended December 31, 2011, were up 5.2% compared to 2010.
The following is an analysis of sales and orders by segment and by region (dollars in thousands):
Sales
For the year ended
December 31,
2011
2010
Dollar and
Percentage
Change
Year to Year
Segment Analysis
LED & Solar . . . . . . . . . . . . . . . . . . . . .
Data Storage . . . . . . . . . . . . . . . . . . . . .
$827,797
151,338
$795,565
135,327
$ 32,232
16,011
4.1%
11.8%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
$979,135
$930,892
$ 48,243
5.2%
Regional Analysis
APAC . . . . . . . . . . . . . . . . . . . . . . . . . .
United States(1) . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . .
$820,883
100,635
57,617
$746,134
92,646
92,112
$ 74,749
10.0%
7,989
8.6%
(34,495) (37.4)%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
$979,135
$930,892
$ 48,243
5.2%
(1) Less than 1%, of sales included within the United States caption above has been derived
from other regions within the Americas.
By segment, LED & Solar sales increased 4.1% in 2011 primarily due to increases in shipments of our
newest systems as compared to 2010 (3.9% increase in MOCVD reactor shipments from 2010) as a
result of the high demand which slowed by the beginning of the second half 2011 for LED applications.
Data Storage sales also increased 11.8%, primarily as a result of an increase in capital spending by data
storage customers for capacity and technology buys. LED & Solar sales represented 84.5% of total
sales for the year ended December 31, 2011, down from 85.5% in the prior year. Data Storage sales
accounted for 15.5% of net sales, up from 14.5% in the prior year. By region, net sales increased by
10.0% in Asia Pacific, primarily due to MOCVD sales to LED customers. In addition, sales in the
Americas increased 8.6% and sales in EMEA decreased 37.4%. We believe that there will continue to
be year-to-year variations in the geographic distribution of sales.
Orders in 2011 decreased 27.1% compared to 2010, primarily attributable to a 32.8% decrease in
LED & Solar orders that were principally driven by a mid-year deterioration due to oversupply in the
LED market, slowing orders dramatically in the third and fourth quarters after hitting a peak in the
second quarter of 2011. Data Storage orders increased 9.0% from the continued increase in our
customers’ capital spending for capacity and technology buys.
Our book-to-bill ratio for 2011, which is calculated by dividing orders received in a given time period
by revenue recognized in the same time period, was 0.84 to 1 compared to 1.20 to 1 in 2010. Our
backlog as of December 31, 2011 was $332.9 million, compared to $535.4 million as of December 31,
2010. During the year ended December 31, 2011, we experienced a net backlog adjustment of
approximately $41.4 million. The adjustment consisted of $38.1 million of order cancellations and
$3.3 million related to other order adjustments. During the year ended December 31, 2011, we had a
positive adjustment related to foreign currency translation of $0.1 million. For certain sales
arrangements we require a deposit for a portion of the sales price before shipment. As of
December 31, 2011 and 2010 we had deposits of $57.1 million and $129.2 million, respectively.
42
Gross Profit
Year ended
December 31,
2011
2010
(dollars in thousands)
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . .
Dollar and
Percentage
Change
Year to Year
$474,334 $449,485 $24,849
48.4%
48.3%
5.5%
Gross profit was $474.3 million or 48.4% for 2011 compared to $449.5 million or 48.3% in 2010.
LED & Solar gross margins decreased to 48.0% from 48.3% in the prior year, primarily due to higher
overhead costs, service support spending and a $0.8 million inventory write-off, which was included in
Cost of sales, partially offset by increases in volume, favorable product mix and lower average material
costs. Data Storage gross margins increased to 50.7% from 48.4% in the prior year due to increased
sales volume and a favorable product mix, partially offset by higher overhead costs and service support
spending.
Operating Expenses
Year ended
December 31,
2011
2010
(dollars in thousands)
Selling, general and administrative . . . . . . . . . . . .
Percentage of sales . . . . . . . . . . . . . . . . . . . . . .
Dollar and
Percentage
Change
Year to Year
$95,134 $87,250 $7,884
9.7%
9.4%
9.0%
Selling, general and administrative expenses increased by $7.9 million or 9.0%, from the prior year
primarily to support the increased level of business in our LED & Solar segment. Selling, general and
administrative expenses were 9.7% of net sales in 2011, compared with 9.4% of net sales in the prior
year.
Year ended
December 31,
2011
2010
(dollars in thousands)
Research and development . . . . . . . . . . . . . . . .
Percentage of sales . . . . . . . . . . . . . . . . . . . . .
Dollar and
Percentage
Change
Year to Year
$96,596 $56,948 $39,648
9.9%
6.1%
69.6%
Research and development expense increased $39.6 million or 69.6% from the prior year, primarily due
to continued product development in areas of high-growth for end market opportunities in our LED &
Solar segment. As a percentage of net sales, research and development expense increased to 9.9% from
6.1% in the prior year.
Year ended
December 31,
2011
2010
(dollars in thousands)
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of sales . . . . . . . . . . . . . . . . . . . . . . .
43
Dollar and
Percentage
Change
Year to Year
$4,734 $3,703 $1,031
0.5%
0.4%
27.8%
Amortization expense increased $1.0 million from the prior year, primarily resulting from the increase
in intangible assets as a result of our acquisition of a privately held company that occurred during the
second quarter of 2011.
Year ended
December 31,
2011
2010
(dollars in thousands)
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of sales . . . . . . . . . . . . . . . . . . . . . . .
*
Dollar and
Percentage
Change
Year to Year
$1,288 $(179) $1,467
0.1% 0.0%
*
Not Meaningful
Restructuring expense of $1.3 million for the year ended December 31, 2011, consisted of personnel
severance costs associated with the company-wide reduction of approximately 65 employees in our
workforce. Restructuring credit of $0.2 million for the year ended December 31, 2010, was attributable
to a change in estimate in our Data Storage segment.
Dollar and
Percentage
Change
Year to Year
(dollars in thousands)
Year ended
December 31,
2011
2010
Asset Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of sales . . . . . . . . . . . . . . . . . . . . . . . . . .
$584
$ — $584
0.1% 0.0%
*
During 2011, the Company recorded a $0.6 million asset impairment charge related to the disposal of
equipment associated with the discontinuance of a certain product line in our LED & Solar segment.
Interest Expense, Net
Year ended
December 31,
2011
2010
(dollars in thousands)
Interest expense, net . . . . . . . . . . . . . . . . . . . .
Percentage of sales . . . . . . . . . . . . . . . . . . . .
Dollar and
Percentage
Change
Year to Year
$(824) $(6,572) $5,748
(0.1)%
(0.7)%
(87.5)%
Interest expense, net for 2011 was $0.8 million, comprised of $1.4 million in cash interest expense,
$1.9 million in non-cash interest expense relating to net amortization of our short-term investments and
$1.3 million in non-cash interest expense relating to our convertible debt, which was retired during the
first half of 2011 creating a loss on extinguishment of approximately $3.3 million. Interest expense was
partially offset by $3.8 million in interest income earned on our cash and short-term investment
balances. Interest expense, net for 2010 was $6.6 million, comprised of $4.7 million in cash interest
expense, $0.4 million in non-cash interest expense relating to our short-term investments and
$3.1 million in non-cash interest expense relating to our convertible debt, partially offset by $1.6 million
in interest income earned on our cash and short-term investment balances. The non-cash interest
expense is related to accounting rules that requires a portion of convertible debt to be allocated to
equity in 2011 and 2010 and accretion of debt discounts and amortization of debt premiums related to
our short-term investments in 2011 and 2010.
44
Income Taxes
Year ended
December 31,
2011
2010
(dollars in thousands)
Income tax provision . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . .
Dollar and
Percentage
Change
Year to Year
$81,584
$19,505 $62,079
30.0%
6.6%
318.3%
The income tax provision attributable to continuing operations for the year ended December 31, 2011
was $81.6 million or 30.0% of income from continuing operations before income taxes compared to
$19.5 million or 6.6% of income from continuing operations before income taxes in the prior year. The
2011 provision for income taxes included $9.6 million relating to our foreign operations and
$72.0 million relating to our domestic operations. The 2010 provision for income taxes included
$8.0 million relating to our foreign operations and $11.5 million relating to our domestic operations.
Our 2010 effective tax rate was lower than our 2011 effective tax rate as a result of the utilization of
our domestic net operating loss and tax credit carry forwards due to the reversal of our valuation
allowance during 2010. Our 2011 effective tax rate is lower than the statutory rate as a result of the
jurisdictional mix of earnings in our foreign locations, which impacted the effective tax rate by
approximately 1.9%, and other favorable tax benefits including the Domestic Production Activities
Deduction and the Research and Development Credit, which impacted the effective tax rate by
approximately 3.4%.
Discontinued Operations
Year ended
December 31,
2011
2010
(dollars in thousands)
Dollar and
Percentage
Change
Year to Year
(Loss) income from discontinued operations before income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (benefit) provision . . . . . . . . . . . . . . . . . . . . . . . . .
$(91,885) $129,776
(29,370)
45,192
$(221,661)
(74,562)
*
*
(Loss) income from discontinued operations . . . . . . . . . . . . . . .
$(62,515) $ 84,584
$(147,099)
*
*
Not Meaningful
Discontinued operations represent the results of the operations of our disposed Metrology segment,
which was sold to Bruker on October 7, 2010, and our CIGS solar systems business, which was
discontinued on September 27, 2011, reported as discontinued operations. The 2011 results reflect an
operational loss before taxes of $1.6 million related to the Metrology segment and an operational loss
before taxes of $90.3 million related to the CIGS solar systems business. The 2010 results reflect an
operational loss before taxes of $0.8 million and a gain on disposal of $156.3 million before taxes
related to the Metrology segment and an operational loss before taxes of $25.7 million related to the
CIGS solar systems business.
Liquidity and Capital Resources
Cash and cash equivalents as of December 31, 2012 was $384.6 million. This amount represents an
increase of $166.6 million from December 31, 2011. We also had short-term investments and restricted
45
cash of $192.2 million and $2.0 million, respectively, as of December 31, 2012. A summary of the
current year cash flow activity is as follows (in thousands):
Year ended December 31,
2012
2011
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 30,928
$ 127,987
Net cash
Net cash
Net cash
Effect of
provided by operating activities . . . . . . . . . . . . . . . .
provided by investing activities . . . . . . . . . . . . . . . .
provided by (used in) financing activities . . . . . . . . .
exchange rate changes on cash and cash equivalents
$111,963
48,321
5,555
796
115,442
106,294
(249,935)
989
Net increase (decrease) in cash and cash equivalents . . . . . . .
Cash and cash equivalents as of beginning of year . . . . . . . . .
166,635
217,922
(27,210)
245,132
Cash and cash equivalents as of end of year . . . . . . . . . . . . .
$384,557
$ 217,922
Cash provided from operations during 2012 was relatively flat compared to 2011 despite the
$97.1 million reduction in net income and the prior year benefit of $44.4 million from non-cash items
from discontinued operations and $11.3 million in deferred taxes. Changes in operating assets and
liabilities contributed $56.3 million in positive cash flows for 2012 compared to the utilization of
$88.7 million in cash during 2011, resulting in a favorable impact of $145.0 million.
Cash provided by investing activities in 2012 declined by $58.0 million compared to the prior year. We
consumed less cash in capital expenditures by $35.4 million and our acquisition costs declined by
$17.9 million from the prior year. During 2012, the Company did not have the benefit of $75.5 million
released from restricted cash related to discontinued operations which it had in 2011. Furthermore, we
generated $39.3 million less from our short-term investment activity in 2012 compared to 2011.
We generated $5.6 million in cash from our financing activities in 2012 compared to using
$249.9 million in 2011, a favorable change of $255.5 million. This change results in part from the use of
$162.1 million for the purchase of treasury stock in 2011 which we did not do in 2012 and repayments
on our long-term debt were reduced by $105.6 million in 2012 compared to 2011.
As of September 30, 2013 our cash and cash equivalent balance, including restricted cash of
$2.9 million was $250.5 million. The balance of our short term investments at September 30, 2013 was
$322.5 million. On October 1, 2013 we utilized $70 million of the foregoing cash balance to close on
the Synos Technology, Inc. (‘‘Synos’’) acquisition. We believe that our September 30, 2013 existing cash
balances and our projected cash generated from operations will be sufficient to meet our projected
working capital and other cash flow requirements for the next twelve months, as well as our contractual
obligations.
46
As of December 31, 2012, our contractual cash obligations and commitments are as follows (in
thousands):
Payments due by period
Total
Long-term debt(1) . . . . . . . . . . . . . . . .
Interest on debt(1) . . . . . . . . . . . . . . . .
Operating leases(2) . . . . . . . . . . . . . . .
Letters of credit and bank guarantees(3)
Purchase commitments(4) . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Less than
1 year
1 - 3 years
3 - 5 years
More
than 5
years
$ 2,406
735
7,903
15,998
62,556
$
268
181
3,491
15,998
62,556
$ 604
294
3,191
—
—
$ 708
190
1,128
—
—
$826
70
93
—
—
$89,598
$82,494
$4,089
$2,026
$989
(1) Long-term debt obligations consist of mortgage and interest payments for our St. Paul, MN facility.
(2) In accordance with relevant accounting guidance, we account for our office leases as operating
leases with expiration dates ranging from 2013 through 2018. There are future minimum annual
rental payments required under the leases. Leasehold improvements made at the beginning of or
during a lease are amortized over the shorter of the remaining lease term or the estimated useful
lives of the assets. This also includes other operating leases we hold, such as cars, apartments and
office equipment. There are no material sublease payments receivable associated with the leases.
(3) Issued by a bank on our behalf as needed. We had letters of credit outstanding of $0.9 million and
bank guarantees outstanding of $15.1 million, of which, $2.0 million that is collateralized against
cash that is restricted from use. As of December 31, 2012, we had $30.5 million of unused lines of
credit and bank guarantees available to draw upon if needed.
(4) Purchase commitments are primarily for inventory used in manufacturing our products. It has been
our practice not to enter into purchase commitments extending beyond one year.
As of September 30, 2013 our purchase commitments have been reduced to $58.6 million. Pursuant to
our agreement to acquire Synos, we may be obligated to pay up to an additional $115 million if certain
conditions are met. See note 15. Subsequent Events in our consolidated financial statements in this
Report.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a
current or future material effect on our financial condition, changes in financial condition, revenue or
expenses, results of operations, liquidity, capital expenditures or capital resources other than operating
leases, letters of credit and bank guarantees, and purchase commitments disclosed in the preceding
‘‘Contractual Cash Obligations and Commitments’’ table.
Application of Critical Accounting Policies
General: Our discussion and analysis of our financial condition and results of operations are based
upon our Consolidated Financial Statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. Management continually monitors and evaluates its estimates and judgments,
including those related to bad debts, inventories, intangible and other long-lived assets, income taxes,
warranty obligations, restructuring costs, and contingent liabilities, including potential litigation.
Management bases its estimates and judgments on historical experience and on various other factors
47
that are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different assumptions or conditions.
We consider certain accounting policies related to revenue recognition, short-term investments, the
valuation of inventories, the impairment of goodwill and indefinite-lived intangible assets, the
impairment of long-lived assets, fair value measurements, warranty costs, income taxes and equity-based
compensation to be critical policies due to the estimation processes involved in each. We have
reclassified certain amounts previously reported in our financial statements to conform to the current
presentation, including amounts related to discontinued operations.
Revenue Recognition: We recognize revenue when all of the following criteria have been met:
persuasive evidence of an arrangement exists with a customer; delivery of the specified products has
occurred or services have been rendered; prices are contractually fixed or determinable; and
collectability is reasonably assured. Revenue is recorded including shipping and handling costs and
excluding applicable taxes related to sales. A significant portion of our revenue is derived from
contractual arrangements with customers that have multiple elements, such as systems, upgrades,
components, spare parts, maintenance and service plans. For sales arrangements that contain multiple
elements, we split the arrangement into separate units of accounting if the individually delivered
elements have value to the customer on a standalone basis. We also evaluate whether multiple
transactions with the same customer or related party should be considered part of a multiple element
arrangement, whereby we assess, among other factors, whether the contracts or agreements are
negotiated or executed within a short time frame of each other or if there are indicators that the
contracts are negotiated in contemplation of each other. When we have separate units of accounting,
we allocate revenue to each element based on the following selling price hierarchy: vendor-specific
objective evidence (‘‘VSOE’’) if available; third party evidence (‘‘TPE’’) if VSOE is not available; or
our best estimate of selling price (‘‘BESP’’) if neither VSOE nor TPE is available. For the majority of
the elements in our arrangements we utilize BESP. The accounting guidance for selling price hierarchy
did not include BESP for arrangements entered into prior to January 1, 2011, and as such we
recognized revenue for those arrangements as described below.
We consider many facts when evaluating each of our sales arrangements to determine the timing of
revenue recognition, including the contractual obligations, the customer’s creditworthiness and the
nature of the customer’s post-delivery acceptance provisions. Our system sales arrangements, including
certain upgrades, generally include field acceptance provisions that may include functional or
mechanical test procedures. For the majority of our arrangements, a customer source inspection of the
system is performed in our facility or test data is sent to the customer documenting that the system is
functioning to the agreed upon specifications prior to delivery. Historically, such source inspection or
test data replicates the field acceptance provisions that will be performed at the customer’s site prior to
final acceptance of the system. As such, we objectively demonstrate that the criteria specified in the
contractual acceptance provisions are achieved prior to delivery and, therefore, we recognize revenue
upon delivery since there is no substantive contingency remaining related to the acceptance provisions
at that date, subject to the retention amount constraint described below. For new products, new
applications of existing products or for products with substantive customer acceptance provisions where
we cannot objectively demonstrate that the criteria specified in the contractual acceptance provisions
have been achieved prior to delivery, revenue and the associated costs are deferred and fully
recognized upon the receipt of final customer acceptance, assuming all other revenue recognition
criteria have been met.
Our system sales arrangements, including certain upgrades, generally do not contain provisions for right
of return or forfeiture, refund, or other purchase price concessions. In the rare instances where such
provisions are included, we defer all revenue until such rights expire. In many cases our products are
sold with a billing retention, typically 10% of the sales price (the ‘‘retention amount’’), which is
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typically payable by the customer when field acceptance provisions are completed. The amount of
revenue recognized upon delivery of a system or upgrade is limited to the lower of i) the amount that
is not contingent upon acceptance provisions or ii) the value allocated to the delivered elements, if
such sale is part of a multiple-element arrangement.
For transactions entered into prior to January 1, 2011, under the accounting rules for multiple-element
arrangements in place at that time, we deferred the greater of the retention amount or the relative fair
value of the undelivered elements based on VSOE. When we could not establish VSOE or TPE for all
undelivered elements of an arrangement, revenue on the entire arrangement was deferred until the
earlier of the point when we did have VSOE for all undelivered elements or the delivery of all
elements of the arrangement.
Our sales arrangements, including certain upgrades, generally include installation. The installation
process is not deemed essential to the functionality of the equipment since it is not complex; that is, it
does not require significant changes to the features or capabilities of the equipment or involve building
elaborate interfaces or connections subsequent to factory acceptance. We have a demonstrated history
of consistently completing installations in a timely manner and can reliably estimate the costs of such
activities. Most customers engage us to perform the installation services, although there are other thirdparty providers with sufficient knowledge who could complete these services. Based on these factors, we
deem the installation of our systems to be inconsequential and perfunctory relative to the system as a
whole, and as a result, do not consider such services to be a separate element of the arrangement. As
such, we accrue the cost of the installation at the time of revenue recognition for the system.
In Japan, where our contractual terms with customers generally specify title and risk and rewards of
ownership transfer upon customer acceptance, revenue is recognized and the customer is billed upon
the receipt of written customer acceptance.
Revenue related to maintenance and service contracts is recognized ratably over the applicable contract
term. Component and spare part revenue are recognized at the time of delivery in accordance with the
terms of the applicable sales arrangement.
Short-Term Investments: We determine the appropriate balance sheet classification of our investments
at the time of purchase and evaluate the classification at each balance sheet date. As part of our cash
management program, we maintain a portfolio of marketable securities which are classified as
available-for-sale. These securities include FDIC guaranteed corporate debt, treasury bills and
government agency securities with maturities of greater than three months. Securities classified as
available-for-sale are carried at fair market value, with the unrealized gains and losses, net of tax,
included in the determination of comprehensive income (loss) and reported in equity. Net realized
gains and losses are included in net income (loss).
Inventory Valuation: Inventories are stated at the lower of cost (principally first-in, first-out method) or
market. On a quarterly basis, management assesses the valuation and recoverability of all inventories,
classified as materials (which include raw materials, spare parts and service inventory), work-in-process
and finished goods.
Materials inventory is used primarily to support the installed tool base and spare parts sales and is
reviewed for excess quantities or obsolescence by comparing on-hand balances to historical usage, and
adjusted for current economic conditions and other qualitative factors. Historically, the variability of
such estimates has been impacted by customer demand and tool utilization rates.
The work-in-process and finished goods inventory is principally used to support system sales and is
reviewed for excess quantities or obsolescence by considering whether on hand inventory would be
utilized to fulfill the related backlog. As the Company typically receives deposits for its orders, the
variability of this estimate is reduced as customers have a vested interest in the orders they place with
the Company. Management also considers qualitative factors such as future product demand based on
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market outlook, which is based principally upon production requirements resulting from customer
purchase orders received with a customer-confirmed shipment date within the next twelve months.
Historically, the variability of these estimates of future product demand has been impacted by backlog
cancellations or modifications resulting from unanticipated changes in technology or customer demand.
Following identification of potential excess or obsolete inventory, management evaluates the need to
write down inventory balances to its estimated market value, if less than its cost. Inherent in the
estimates of market value are management’s estimates related to our future manufacturing schedules,
customer demand, technological and/or market obsolescence, possible alternative uses, and ultimate
realization of potential excess inventory. Unanticipated changes in demand for our products may
require a write down of inventory that could materially affect our operating results.
Goodwill and Indefinite-Lived Intangible Asset Impairment: The Company does not amortize goodwill
or intangible assets with indefinite useful lives, but instead tests the balances in these asset accounts for
impairment at least annually at the reporting unit level. Our policy is to perform this annual
impairment test in the fourth quarter, using a measurement date of October 1st of each fiscal year or
more frequently if impairment indicators arise. Impairment indicators include, among other conditions,
cash flow deficits, a historical or anticipated decline in revenue or operating profit, adverse legal or
regulatory developments, and a material decrease in the fair value of some or all of the assets.
Pursuant to relevant accounting pronouncements, we are required to determine if it is appropriate to
use the operating segment as defined under accounting guidance as the reporting unit or one level
below the operating segment, depending on whether certain criteria are met. We have identified four
reporting units that are required to be reviewed for impairment. The four reporting units are
aggregated into two segments: the VIBE and Mechanical reporting units which are reported in our
Data Storage segment; and the MOCVD and MBE reporting units which are reported in our LED and
Solar segment. In identifying the reporting units management considered the economic characteristics
of operating segments including the products and services provided, production processes, types or
classes of customer and product distribution.
We perform this impairment test by first comparing the fair value of our reporting units to their
respective carrying amount. When determining the estimated fair value of a reporting unit, we utilize a
discounted future cash flow approach since reported quoted market prices are not available for our
reporting units. Developing the estimate of the discounted future cash flow requires significant
judgment and projections of future financial performance. The key assumptions used in developing the
discounted future cash flows are the projection of future revenues and expenses, working capital
requirements, residual growth rates and the weighted average cost of capital. In developing our
financial projections, we consider historical data, current internal estimates and market growth trends.
Changes to any of these assumptions could materially change the fair value of the reporting unit. We
reconcile the aggregate fair value of our reporting units to the Company’s adjusted market
capitalization as a supporting calculation. The adjusted market capitalization is calculated by
multiplying the average share price of our common stock for the last ten trading days prior to the
measurement date by the number of outstanding common shares and adding a control premium.
If the carrying value of the reporting units exceed the fair value we would then compare the implied
fair value of our goodwill to the carrying amount in order to determine the amount of the impairment,
if any.
Definite-Lived Intangible and Long-Lived Assets: Definite-lived intangible assets consist of purchased
technology, customer-related intangible assets, patents, trademarks, covenants not-to-compete, software
licenses and deferred financing costs. Purchased technology consists of the core proprietary
manufacturing technologies associated with the products and offerings obtained through acquisition and
are initially recorded at fair value. Customer-related intangible assets, patents, trademarks, covenants
not-to-compete and software licenses that are obtained in an acquisition are initially recorded at fair
50
value. Other software licenses and deferred financing costs are initially recorded at cost. Intangible
assets with definitive useful lives are amortized using the straight-line method over their estimated
useful lives for periods ranging from 2 years to 17 years.
Property, plant and equipment are recorded at cost. Depreciation is provided over the estimated useful
lives of the related assets using the straight-line method for financial statement purposes. Amortization
of leasehold improvements is computed using the straight-line method over the shorter of the
remaining lease term or the estimated useful lives of the improvements.
Long-lived assets, such as property, plant, and equipment and intangible assets with definite useful
lives, are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Impairment indicators include, among other
conditions, cash flow deficits, a historical or anticipated decline in revenue or operating profit, adverse
legal or regulatory developments and a material decrease in the fair value of some or all of the assets.
Assets are grouped at the lowest level for which there are identifiable cash flows that are largely
independent of the cash flows generated by other asset groups. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted
future cash flow expected to be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset.
Fair Value Measurements: Accounting guidance for our non-financial assets and non-financial liabilities
requires that we disclose the type of inputs we use to value our assets and liabilities, based on three
categories of inputs as defined in such. Level 1 inputs are quoted, unadjusted prices in active markets
for identical assets or liabilities that the company has the ability to access at the measurement date.
Level 2 inputs are other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly, such as quoted prices for similar assets or liabilities. Level 3 inputs
are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to
the extent that observable inputs are not available, thereby allowing for situations in which there is
little, if any, market activity for the asset or liability at the measurement date. These requirements
apply to our long-lived assets, goodwill, cost method investment and intangible assets. We use Level 3
inputs to value all of such assets. The Company primarily applies the market approach for recurring
fair value measurements.
Warranty Costs: Our warranties are typically valid for one year from the date of final acceptance. We
estimate the costs that may be incurred under the warranty we provide and record a liability in the
amount of such costs at the time the related revenue is recognized. Estimated warranty costs are
determined by analyzing specific product and historical configuration statistics and regional warranty
support costs. Our warranty obligation is affected by product failure rates, material usage, and labor
costs incurred in correcting product failures during the warranty period. Unforeseen component failures
or exceptional component performance can also result in changes to warranty costs. If actual warranty
costs differ substantially from our estimates, revisions to the estimated warranty liability would be
required.
Income Taxes: We are required to estimate our income taxes in each of the jurisdictions in which we
operate. This process involves estimating the actual current tax expense, together with assessing
temporary differences resulting from differing treatment of items for tax and financial reporting
purposes. These differences result in deferred tax assets and liabilities, which are included within our
Consolidated Balance Sheets. The carrying value of our deferred tax assets is adjusted by a partial
valuation allowance to recognize the extent to which the future tax benefits will be recognized on a
more likely than not basis. Our net deferred tax assets consist primarily of tax credit carry forwards and
timing differences between the book and tax treatment of inventory, acquired intangible assets and
51
other asset valuations. Realization of these net deferred tax assets is dependent upon our ability to
generate future taxable income.
We record valuation allowances in order to reduce our deferred tax assets to the amount expected to
be realized. In assessing the adequacy of recorded valuation allowances, we consider a variety of
factors, including the scheduled reversal of deferred tax liabilities, future taxable income and prudent
and feasible tax planning strategies. Under the relevant accounting guidance, factors such as current
and previous operating losses are given significantly greater weight than the outlook for future
profitability in determining the deferred tax asset carrying value.
Relevant accounting guidance addresses the determination of how tax benefits claimed or expected to
be claimed on a tax return should be recorded in the financial statements. Under such guidance, we
must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the
tax position will be sustained on examination by the taxing authorities, based on the technical merits of
the position. The tax benefits recognized in the financial statements from such uncertain tax positions
are measured based on the largest benefit that has a greater than fifty percent likelihood of being
realized upon ultimate resolution.
Equity-Based Compensation: The Company grants equity-based awards, such as stock options and
restricted stock or restricted stock units, to certain key employees to create a clear and meaningful
alignment between compensation and shareholder return and to enable the employees to develop and
maintain a stock ownership position. While the majority of our equity awards feature time-based
vesting, performance-based equity awards, which are awarded from time to time to certain key
Company executives, vest as a function of performance, and may also be subject to the recipient’s
continued employment which also acts as a significant retention incentive.
Equity-based compensation cost is measured at the grant date, based on the fair value of the award
and is recognized as expense over the employee requisite service period. In order to determine the fair
value of stock options on the date of grant, we apply the Black-Scholes option-pricing model. Inherent
in the model are assumptions related to risk-free interest rate, dividend yield, expected stock-price
volatility and option life.
The risk-free rate assumed in valuing the options is based on the U.S. Treasury yield curve in effect at
the time of grant for the expected term of the option. The dividend yield assumption is based on the
Company’s historical and future expectation of dividend payouts. While the risk-free interest rate and
dividend yield are less subjective assumptions, typically based on objective data derived from public
sources, the expected stock-price volatility and option life assumptions require a level of judgment
which make them critical accounting estimates.
We use an expected stock-price volatility assumption that is a combination of both historical volatility
calculated based on the daily closing prices of our common stock over a period equal to the expected
term of the option and implied volatility, and utilization of market data of actively traded options on
our common stock, which are obtained from public data sources. We believe that the historical volatility
of the price of our common stock over the expected term of the option is a strong indicator of the
expected future volatility and that implied volatility takes into consideration market expectations of how
future volatility will differ from historical volatility. Accordingly, we believe a combination of both
historical and implied volatility provides the best estimate of the future volatility of the market price of
our common stock.
The expected option term, representing the period of time that options granted are expected to be
outstanding, is estimated using a lattice-based model incorporating historical post vest exercise and
employee termination behavior.
We estimate forfeitures using our historical experience, which is adjusted over the requisite service
period based on the extent to which actual forfeitures differ or are expected to differ, from such
52
estimates. Because of the significant amount of judgment used in these calculations, it is reasonably
likely that circumstances may cause the estimate to change.
With regard to the weighted-average option life assumption, we consider the exercise behavior of past
grants and model the pattern of aggregate exercises.
We settle the exercise of stock options with newly issued shares.
With respect to grants of performance based awards, we assess the probability that such performance
criteria will be met in order to determine the compensation expense. Consequently, the compensation
expense is recognized straight-line over the vesting period. If that assessment of the probability of the
performance condition being met changes, the company would recognize the impact of the change in
estimate in the period of the change. As with the use of any estimate, and owing to the significant
judgment used to derive those estimates, actual results may vary.
The Company has elected to treat awards with only service conditions and with graded vesting as one
award. Consequently, the total compensation expense is recognized straight-line over the entire vesting
period, so long as the compensation cost recognized at any date at least equals the portion of the grant
date fair value of the award that is vested at that date.
Recent Accounting Pronouncements
Parent’s Accounting for the Cumulative Translation Adjustment: In March 2013, the FASB issued ASU
No. 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain
Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. This new
standard is intended to resolve diversity in practice regarding the release into net income of a
cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a
foreign entity. ASU No. 2013-05 is effective prospectively for fiscal years (and interim reporting periods
within those years) beginning after December 15, 2013. We are currently reviewing this standard, but
we do not anticipate that its adoption will have a material impact on our consolidated financial
statements, absent any material transactions involving the derecognition of subsidiaries or groups of
assets within a foreign entity.
Comprehensive Income: In February 2013, the Financial Accounting Standards Board (‘‘FASB’’) issued
Accounting Standards Update (‘‘ASU’’) No. 2013-02, Comprehensive Income (Topic 220)—Reporting of
Amounts Reclassified Out of Accumulated Other Comprehensive Income, which contained amended
standards regarding disclosure requirements for items reclassified out of accumulated other
comprehensive income (‘‘AOCI’’). These amended standards require the disclosure of information
about the amounts reclassified out of AOCI by component and, in addition, require disclosure, either
on the face of the financial statements or in the notes, of significant amounts reclassified out of AOCI
by the respective line items of net income, but only if the amount reclassified is required to be
reclassified in its entirety in the same reporting period. For amounts that are not required to be
reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures
that provide additional details about those amounts. These amended standards do not change the
current requirements for reporting net income or other comprehensive income in the consolidated
financial statements. These amended standards were effective for us on January 1, 2013, and the
adoption of this guidance did not materially impact our consolidated financial statements.
Technical Corrections and Improvements: In October 2012, the FASB issued amended guidance related
to Technical Corrections and Improvements. The amendments represent changes to clarify the
Codification, correct unintended application of guidance, or make minor improvements to the
Codification that are not expected to have a significant effect on current accounting practice or create
a significant administrative cost to most entities. The amendments will make the Codification easier to
understand and the fair value measurement guidance easier to apply by eliminating inconsistencies and
53
providing needed clarifications. An entity is required to apply the amendments for annual reporting
periods beginning on or after December 15, 2012. The amendment has no transition guidance. The
Company does not believe that this guidance will have a material impact on its consolidated financial
statements.
Indefinite-Lived Intangible Assets: In July 2012, the FASB issued amended guidance related to
Intangibles—Goodwill and Other: Testing of Indefinite-Lived Intangible Assets for Impairment. This
amendment intends to simplify the guidance for testing the decline in the realizable value (impairment)
of indefinite-lived intangible assets other than goodwill. Some examples of intangible assets subject to
the guidance include indefinite-lived trademarks, licenses and distribution rights. The guidance allows
companies to perform a qualitative assessment about the likelihood of impairment of an indefinite-lived
intangible asset to determine whether further impairment testing is necessary, similar in approach to
the goodwill impairment test. The ASU will become effective for annual and interim impairment tests
performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The
Company early adopted this standard in the third quarter of 2012 and this guidance did not have a
material impact on its consolidated financial statements.
Balance Sheet: In December 2011, the FASB issued amended guidance related to the Balance Sheet
(Disclosures about Offsetting Assets and Liabilities). This amendment requires an entity to disclose
information about offsetting and related arrangements to enable users of its financial statements to
understand the effect of those arrangements on its financial position. An entity is required to apply the
amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods
within those annual periods. The amendment should be applied retrospectively. The Company does not
believe that this guidance will have a material impact on its consolidated financial statements.
Comprehensive Income: In December 2011, the FASB issued amended guidance related to
Comprehensive Income. In order to defer only those changes in the June amendment (addressed
below) that relate to the presentation of reclassification adjustments, the FASB issued this amendment
to supersede certain pending paragraphs in the June amendment. The amendments are being made to
allow the FASB time to redeliberate whether to present on the face of the financial statements the
effects of reclassifications out of accumulated other comprehensive income on the components of net
income and other comprehensive income for all periods presented. While the FASB is considering the
operational concerns about the presentation requirements for reclassification adjustments and the needs
of financial statement users for additional information about reclassification adjustments, entities should
continue to report reclassifications out of accumulated other comprehensive income consistent with the
presentation requirements in effect before the June amendment. All other requirements are not
affected, including the requirement to report comprehensive income either in a single continuous
financial statement or in two separate but consecutive financial statements. Public entities should apply
these requirements for fiscal years, and interim periods within those years, beginning after
December 15, 2011. The adoption of this guidance did not have a material impact on the Company’s
consolidated financial statements.
Intangibles—Goodwill and Other: In September 2011, the FASB issued amended guidance related to
Intangibles—Goodwill and Other: Testing Goodwill for Impairment. The amendment is intended to
simplify how entities test goodwill for impairment. The amendment permits an entity to first assess
qualitative factors to determine whether it is ‘‘more likely than not’’ that the fair value of a reporting
unit is less than its carrying amount as a basis for determining whether it is necessary to perform the
two-step goodwill impairment test. The more-likely-than-not threshold is defined as having a likelihood
of more than 50%. This amendment is effective for annual and interim goodwill impairment tests
performed for fiscal years beginning after December 15, 2011. The adoption of this guidance did not
have a material impact on the Company’s consolidated financial statements.
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Comprehensive Income: In June 2011, the FASB issued amended guidance related to Comprehensive
Income. This amendment allows an entity the option to present the total of comprehensive income, the
components of net income, and the components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate but consecutive statements. In both
choices, an entity is required to present each component of net income along with total net income,
each component of other comprehensive income along with a total for other comprehensive income,
and a total amount for comprehensive income. The amendment eliminates the option to present the
components of other comprehensive income as part of the statement of equity. The amendments do
not change the items that must be reported in other comprehensive income or when an item of other
comprehensive income must be reclassified to net income. The amendment should be applied
retrospectively. The amendments are effective for fiscal years, and interim periods within those years,
beginning after December 15, 2011. The adoption of this guidance did not have a material impact on
the Company’s consolidated financial statements.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Market Risk
The principal market risks (such as the risk of loss arising from adverse changes in market rates and
prices) to which we are exposed are:
• rates on investment portfolios, and
• exchange rates, generating translation and transaction gains and losses.
Interest Rates
We centrally manage our investment portfolios considering investment opportunities and risk, tax
consequences and overall financing strategies. Our investment portfolio includes fixed-income securities
with a fair value of approximately $192.2 million as of December 31, 2012. These securities are subject
to interest rate risk and will decline in value if interest rates increase. Based on our investment
portfolio as of December 31, 2012, an immediate 100 basis point increase in interest rates may result in
a decrease in the fair value of the portfolio of approximately $1.4 million. Our investment portfolio as
of September 30, 2013 had a fair value of approximately $322.5 million. An immediate 100 basis point
increase in interest rates may result in a decrease in the fair value of the September 30, 2013 portfolio
of approximately $2.9 million. While an increase in interest rates may reduce the fair value of the
investment portfolio, we will not realize the losses in the consolidated statements of income unless the
individual fixed-income securities are sold prior to recovery or the loss is determined to be
other-than-temporary.
Foreign Operations
Operating in international markets involves exposure to movements in currency exchange rates, which
are volatile at times. The economic impact of currency exchange rate movements is complex because
such changes are often linked to variability in real growth, inflation, interest rates, governmental actions
and other factors. These changes, if material, could cause us to adjust our financing and operating
strategies. Consequently, isolating the effect of changes in currency does not incorporate these other
important economic factors.
Our net sales to foreign customers represented approximately 84%, 90% and 90% of our total net sales
in 2012, 2011 and 2010, respectively. We expect that net sales to foreign customers will continue to
represent a large percentage of our total net sales. Our net sales denominated in foreign currencies
represented approximately 4%, 3% and 2% of total net sales in 2012, 2011 and 2010, respectively. The
aggregate foreign currency exchange (loss) gain included in determining consolidated results of
operations was approximately $(0.5) million, $(1.0) million and $1.3 million in 2012, 2011 and 2010,
55
respectively. Included in the aggregate foreign currency exchange (loss) gain were gains relating to
forward contracts of $0.3 million, $0.5 million and $0.1 million in 2012, 2011 and 2010, respectively.
These amounts were recognized and are included in other, net in the accompanying Consolidated
Statements of Income.
As of December 31, 2012, there was a $0.2 million gain related to forward contracts included in
prepaid expenses and other current assets. As of December 31, 2011, there were no gains or losses
related to forward contracts included in prepaid expenses and other current assets or accrued expenses
and other current liabilities. As of December 31, 2010, approximately $0.3 million of gains related to
forward contracts were included in prepaid expenses and other current assets. As of December 31,
2012, there are monthly forward contracts outstanding with a notional amount of $9.6 million, which
settled in January 2013.
We are exposed to financial market risks, including changes in foreign currency exchange rates. To
mitigate these risks, we use derivative financial instruments. We do not use derivative financial
instruments for speculative or trading purposes. We enter into monthly forward contracts to reduce the
effect of fluctuating foreign currencies on short-term foreign currency-denominated intercompany
transactions and other known currency exposures. The weighted average notional amount of such
contracts outstanding was approximately $3.5 million for the year ended December 31, 2012. The
changes in currency exchange rates that have the largest impact on translating our international
operating profit (loss) are the Japanese yen and the euro. We believe that based upon our hedging
program, a 10% change in foreign exchange rates would have an immaterial impact on the consolidated
results of operations. We believe that this quantitative measure has inherent limitations because it does
not take into account any governmental actions or changes in either customer purchasing patterns or
our financing and operating strategies. From December 31, 2012 through September 30, 2013, we did
not have a material net foreign currency exchange effect on our financial position, results of operations,
or cash flows from currencies that we have exposure to.
Item 8.
Financial Statements and Supplementary Data
Our Consolidated Financial Statements are listed in the Index to Consolidated Financial Statements
and Financial Statement Schedule filed as part of this Form 10-K.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
This Item 9A includes information concerning the controls and control evaluations referred to in the
certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 of the
Exchange Act included in this Report as Exhibits 31.1 and 31.2.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act)
are designed to ensure that information required to be disclosed in reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in
SEC rules and forms and that such information is accumulated and communicated to management,
including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosures.
In connection with the preparation of this report, Veeco’s management, under the supervision and with
the participation of the Chief Executive Officer and the Chief Financial Officer, conducted an
evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as
56
of December 31, 2012 in connection with the filing of this Annual Report on Form 10-K. As described
below, management has identified material weaknesses in our internal control over financial reporting,
which is an integral component of our disclosure controls and procedures. As a result of the material
weaknesses and the inability to file Annual Reports on Form 10-K within the statutory time period,
management has concluded that our disclosure controls and procedures were ineffective as of
December 31, 2012.
Management’s Report on Internal Control Over Financial Reporting
Management of Veeco and its consolidated subsidiaries, under the supervision of its Chief Executive
Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
Internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
reporting purposes in accordance with generally accepted accounting principles (GAAP). Because of its
inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate. A material weakness is a deficiency, or a combination
of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the annual or interim financial statements will not be prevented or
detected on a timely basis.
Veeco management, under the supervision of its Chief Executive Officer and Chief Financial Officer,
conducted an assessment of the effectiveness of its internal control over financial reporting as of
December 31, 2012 based on the criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In connection with
the above assessment, Veeco management identified the following material weaknesses:
Inadequate and ineffective controls over the recognition of revenue
We did not have adequate controls to ensure that revenue was recorded in accordance with GAAP.
Specifically, we noted the following with respect to our accounting for certain revenue transactions:
• We did not maintain a sufficient complement of personnel with an appropriate level of accounting
knowledge, experience, and training in the application of US GAAP related to revenue recognition
for multiple-element arrangements.
• We did not design and maintain effective controls over the adequate review and approval of
customer orders at certain of our foreign subsidiaries to ensure that the order documentation
received from the customer constituted the final order documentation. Additionally, in some cases,
our foreign subsidiaries did not always communicate to our corporate accounting staff all of the
information necessary to make accurate revenue recognition determinations.
• We did not design and maintain adequate procedures or effective review and approval controls over
the accurate recording, presentation and disclosure of revenue and related costs related to multipleelement arrangements, including ensuring that multiple-element arrangements were identified,
evaluated and effectively reviewed by appropriate accounting personnel. Specifically, we did not
establish adequate procedures or design effective controls to:
• Identify the nature of contracts, capture necessary data and determine how revenue should be
recognized in accordance with applicable revenue recognition guidance;
• Ensure consistent communication and coordination between and among various finance and
non-finance personnel about the scope, terms and modifications to customer arrangements; and
57
• Ensure that all elements included in multiple-element arrangements were identified and accounted
for appropriately.
• Assess whether vendor-specific objective evidence, third-party evidence of fair value or, for periods
subsequent to January 1, 2011, adequate documentation of management’s determination of best
estimate of selling price existed for all the elements in the arrangement.
As a result of the material weaknesses described above, management has concluded that, as of
December 31, 2012, our internal control over financial reporting was not effective. The Company’s
independent registered public accounting firm audited the effectiveness of internal control over
financial reporting as of December 31, 2012. Their report on the effectiveness of internal control over
financial reporting as of December 31, 2012 is set forth herein. The Company’s independent registered
public accounting firm has issued an unqualified opinion on the Company’s consolidated financial
statements for 2012, which is included in Part II, Item 8 of this annual report on Form 10-K.
Remediation of Material Weaknesses in Internal Control Over Financial Reporting
Management is committed to the planning and implementation of remediation efforts to address the
material weaknesses. These remediation efforts, summarized below, which have been implemented or
are in process of implementation, are intended to both address the identified material weaknesses and
to enhance our overall financial control environment. In this regard, our initiatives include:
• Organizational Enhancements—The Company has hired a new Vice President—Global Revenue
Recognition who will be responsible for all aspects of the Company’s revenue recognition policies,
procedures and accounting. The Company has also created three new corporate revenue recognition
positions, two of which have already been filled. Additionally, the Company has replaced certain key
personnel in some of its foreign subsidiaries.
• Training—The Company is developing a comprehensive revenue recognition training program,
portions of which have already been delivered. This training is focused on senior-level management,
customer-facing employees as well as business unit, finance, sales and marketing personnel, including
those at our foreign subsidiaries.
• Revenue Practices—The Company is currently evaluating its revenue practices and has begun
implementing changes in those practices. Improvements are focused in the areas of (1) development
of more comprehensive revenue recognition policies and improved procedures to ensure that such
policies are understood and consistently applied, (2) better communication among all functions
involved in the sales process (e.g., sales, business unit, foreign subsidiaries, legal, accounting, finance),
(3) more standardization of contract documentation and revenue analyses for individual transactions
and (4) system improvements and automation of manual processes.
While this remediation plan is being executed, the Company has also engaged additional external
resources to support and supplement the Company’s existing internal resources.
When fully implemented and operational, we believe the measures described above will remediate the
material weaknesses we have identified and strengthen our internal control over financial reporting. We
are committed to continuing to improve our internal control processes and will continue to diligently
and vigorously review our financial reporting controls and procedures. As we continue to evaluate and
work to improve our internal control over financial reporting, our management may determine to take
additional measures.
Changes in Internal Control Over Financial Reporting
Other than the ongoing remediation efforts described above, there have been no changes in our
internal control over financial reporting during the quarter ended December 31, 2012 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Item 9B.
Other Information
None.
58
PART III
Item 10.
Directors, Executive Officers, and Corporate Governance
Veeco’s Board of Directors and management are committed to responsible corporate governance to
ensure that Veeco is managed for the long-term benefit of its stockholders. To that end, the Board of
Directors and management review published guidelines and recommendations of institutional
stockholder organizations and current best practices of similarly situated public companies. The Board
and management periodically evaluate and, when appropriate, revise Veeco’s corporate governance
policies and practices in light of these guidelines and practices and to comply with the requirements of
the Sarbanes-Oxley Act of 2002 and the rules and listing standards issued by the Securities and
Exchange Commission (‘‘SEC’’) and The Nasdaq Stock Market, Inc. (‘‘Nasdaq’’).
Members of the Board of Directors
The Directors of Veeco, and their ages, year they joined the Board and committee memberships as of
October 18, 2013, are:
Committee Membership
Name
Edward H. Braun . . . . .
Richard A. D’Amore . .
Gordon Hunter . . . . . .
Keith D. Jackson . . . . .
Roger D. McDaniel(A)
John R. Peeler . . . . . . .
Peter J. Simone . . . . . .
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Age
Director
since
73
60
62
58
74
58
66
1990
1990
2010
2012
1998
2007
2004
Audit
Compensation
X
X
X
X
Governance
Strategic
Planning
Chair
Chair
X
X
Chair
X
Chair
X
(A) Mr. McDaniel also serves as Lead Director.
Edward H. Braun was Chairman and Chief Executive Officer of Veeco from January 1990 through July
2007, and Chairman from July 2007 through May 2012. Mr. Braun led a management buyout of a
portion of Veeco’s predecessor in January 1990 to form the Company. He joined the predecessor in
1966 and held numerous executive positions during his tenure there. Mr. Braun is a Director Emeritus
of Semiconductor Equipment and Materials International (SEMI), a trade association, of which he was
Chairman of the Board in 1993. In addition, within the past five years, Mr. Braun served as a director
of Axcelis Technologies, Inc. and Cymer, Inc.
Mr. Braun has been associated with Veeco and Veeco’s predecessor for over 40 years and brings to the
Board extensive knowledge about our business operations and our served markets. Mr. Braun also
brings to the Board significant executive leadership and operational experience. Mr. Braun’s prior
business experience and board service, along with his long tenure at Veeco, give him a broad and
extensive understanding of our operations and the proper role and function of the Board.
Richard A. D’Amore has been a General Partner of North Bridge Venture Partners, a venture capital
firm, since 1994. In addition, during the past five years, Mr. D’Amore served as a director of Phase
Forward Incorporated and Solectron Corporation.
Mr. D’Amore brings a strong business background to Veeco, having worked in the venture capital field
for over 30 years. Mr. D’Amore has experience as a certified public accountant and gained substantial
experience in overseeing the management of diverse organizations, having served as a board member
on other public company boards and numerous private company boards. As a result of this service,
Mr. D’Amore has a broad understanding of the operational, financial and strategic issues facing public
59
companies. He has served on our Board for 20 years and through that service has developed extensive
knowledge of our business.
Gordon Hunter is Chairman, President and Chief Executive Officer of Littelfuse, Inc., a provider of
circuit protection products and solutions. He also serves on the Council of Advisors of Shure
Incorporated. Mr. Hunter has been a director of Littelfuse since June 2002 and became Chairman,
President and Chief Executive Officer of Littelfuse in January 2005. Prior to joining Littelfuse,
Mr. Hunter was Vice President of Intel Communications Group and General Manager of Optical
Products Group. At Intel, Mr. Hunter was responsible for Intel’s access and optical communications
business segments within the Intel Communications Group. Prior to joining Intel in February 2002, he
served as President of Elo TouchSystems, a subsidiary of Raychem Corporation. Mr. Hunter also served
in a variety of positions during a 20 year career at Raychem Corporation, including Vice President of
Commercial Electronics and a variety of sales, marketing, engineering and management positions.
Mr. Hunter also serves on the Board of Littelfuse and CTS Corporation.
Mr. Hunter has substantial leadership and management experience, having served as the Chairman,
President and Chief Executive Officer of Littelfuse and in various leadership roles at a number of other
companies. He has a strong background and valuable experience in the technology industry, gained
from his tenure at Littelfuse, Intel and Raychem. Mr. Hunter brings a broad understanding of the
operational, financial and strategic issues facing public and private companies to the board as a result
of his service on other public and private boards.
Keith D. Jackson is President and Chief Executive Officer of ON Semiconductor Corporation, appointed
in November 2002. Mr. Jackson has over 30 years of semiconductor industry experience. Before joining
ON Semiconductor, he was with Fairchild Semiconductor Corporation, serving as Executive Vice
President and General Manager, Analog, Mixed Signal, and Configurable Products Groups beginning in
1998, and, more recently, was head of its Integrated Circuits Group. From 1996 to 1998, he served as
President and a member of the board of directors of Tritech Microelectronics in Singapore, a
manufacturer of analog and mixed signal products. From 1986 to 1996, Mr. Jackson worked for
National Semiconductor Corporation, most recently as Vice President and General Manager of the
Analog and Mixed Signal division. He also held various positions at Texas Instruments Incorporated,
including engineering and management positions, from 1973 to 1986. Mr. Jackson has served on the
board of directors of the Semiconductor Industry Association since 2008.
Mr. Jackson has extensive international experience in product development, manufacturing, marketing
and sales. Mr. Jackson is uniquely qualified to bring strategic insight and industry knowledge to the
Board, having served in numerous management positions in our industry. In addition, Mr. Jackson
brings to the Board his perspective as a director of other corporate boards.
Roger D. McDaniel, currently retired, was President and Chief Executive Officer of IPEC, Inc., which
manufactured chemical-mechanical planarization (‘‘CMP’’) equipment for the semiconductor industry,
from 1997 to April 1999. Through August 1996, Mr. McDaniel was Chief Executive Officer of MEMC
Electronic Materials, Inc., a producer of silicon wafers. Mr. McDaniel is a past Chairman of SEMI and
also serves on the board of Entegris, Inc.
Mr. McDaniel has significant experience in the process equipment and materials industry, having served
as chief executive officer at several companies operating in this field. Mr. McDaniel has also served on
public and private boards, both domestic and international, which has resulted in a broad
understanding of the operational, financial and strategic issues facing public and private companies.
Mr. McDaniel’s in-depth knowledge of our business and his extensive management experience are
important aspects of his service on the Board.
John R. Peeler has been Chief Executive Officer and a Director of Veeco since July 2007, and Chairman
since May 2012. Prior thereto, he was Executive Vice President of JDS Uniphase Corp. (‘‘JDSU’’) and
60
President of the Communications Test & Measurement Group of JDSU, which he joined upon the
closing of JDSU’s merger with Acterna, Inc. (‘‘Acterna’’) in August 2005. Before joining JDSU,
Mr. Peeler served as President and Chief Executive Officer of Acterna. Mr. Peeler joined a predecessor
of Acterna in 1980 and served in a series of increasingly senior leadership roles including Vice
President of Product Development, Executive Vice President and Chief Operating Officer, and
President and CEO of Telecommunications Techniques Corporation (TTC). Mr. Peeler also serves on
the board of IPG Photonics Corporation.
Mr. Peeler has substantial industry and management experience, having served in senior management
positions for the last 30 years culminating in his appointment as our Chief Executive Officer in 2007.
He has experience in managing diversified global companies and has a broad understanding of the
challenges and opportunities facing public companies.
Peter J. Simone is a retired executive who currently serves as an independent consultant to several
private companies and the investment community. From June 2001 to December 2002, Mr. Simone was
Executive Chairman of SpeedFam-IPEC, Inc., a semiconductor equipment company which was acquired
by Novellus Systems, Inc. From August 2000 to February 2001, Mr. Simone was President and a
director of, and from January 2000 to August 2000 was a consultant to, Active Control eXperts, Inc., a
supplier of precision motion control and smart structures technology. From April 1997 to January 2000,
Mr. Simone served as President and Chief Executive Officer and a director of Xionics Document
Technologies, Inc. Prior thereto, Mr. Simone spent 17 years with GCA Corporation, a manufacturer of
semiconductor photolithography capital equipment, where he held various management positions,
including president and director. Mr. Simone is also a director of Monotype Imaging, Inc. and Newport
Corporation. Additionally, during the past five years, he served as a director of Cymer, Inc., Inphi
Corporation and Sanmina-SCI Corporation.
Mr. Simone has held numerous executive positions in the technology and semiconductor industries.
Mr. Simone has also worked in the consulting field, advising private companies and the investment
community. Mr. Simone has served on a number of public and private boards and his experiences have
resulted in a broad understanding of the operational, financial and strategic issues facing public and
private companies. He brings significant financial and operational management, as well as financial
reporting, experience to the Board.
Executive Officers
The executive officers of Veeco, and their ages, as of October 18, 2013, are as follows:
Name
John R. Peeler . . . . . . .
David D. Glass . . . . . .
William J. Miller, Ph.D.
Peter Collingwood . . . .
John P. Kiernan . . . . . .
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Age
Position
58
54
45
53
51
Chairman and Chief Executive Officer
Executive Vice President and Chief Financial Officer
Executive Vice President, Process Equipment
Senior Vice President, Worldwide Sales and Service
Senior Vice President, Finance, Chief Accounting Officer, Corporate
Controller and Treasurer
John R. Peeler has been Chief Executive Officer and a Director of Veeco since July 2007, and Chairman
since May 2012. A description of Mr. Peeler’s business experience appears above under Members of the
Board of Directors.
David D. Glass has been Executive Vice President and Chief Financial Officer of Veeco since January
2010. Prior to joining Veeco, Mr. Glass served in various senior executive positions with Rohm and
Haas Company, a $10 billion global specialty materials company that was acquired in 2009 by The Dow
Chemical Company. These positions included serving from 2007 to January 2009 as Chief Financial
Officer of Rohm and Haas’ $2 billion Electronic Materials division and Chief Financial Officer of the
61
Rohm and Haas Asia-Pacific region, serving from 2003-2007 as Rohm and Haas’ Corporate Controller.
Prior thereto, Mr. Glass was President of Toso-Haas, a stand-alone joint venture between Rohm and
Haas and Tosoh of Japan.
William J. Miller, Ph.D. has been Executive Vice President, Process Equipment since December 2011,
and was Executive Vice President, Compound Semiconductor from July 2010 until December 2011.
Prior thereto, he was Senior Vice President and General Manager of Veeco’s MOCVD business since
January 2009. Dr. Miller was Vice President, General Manager of Veeco’s Data Storage equipment
business since January 2006. He held leadership positions of increasing responsibility in both the
engineering and operations organizations since he joined Veeco in November 2002. Prior to joining
Veeco, he held a range of engineering and operations leadership positions at Advanced Energy
Industries.
Peter Collingwood has been Senior Vice President, Worldwide Sales and Service since January 2009.
From October 2008 to December 2008, he was Vice President and General Manager for Veeco’s
European operations. He joined Veeco from JDSU (formerly Acterna, which was formerly TTC), where
he served as the Regional Vice President of Sales for Europe, Middle East and Africa for the
Communications Test Division from April 2004 to December 2008. Prior to that, he held various
management positions at JDSU and JDSU’s predecessors from January 1987 to April 2004.
John P. Kiernan has been Senior Vice President, Finance, Chief Accounting Officer, Corporate
Controller and Treasurer since December 2011. From July 2005 to November 2011, he was Senior Vice
President, Finance, Chief Accounting Officer and Corporate Controller. Prior thereto, he was Vice
President, Finance and Corporate Controller of Veeco from April 2001 to June 2005, Vice President
and Corporate Controller from November 1998 to March 2001, and Corporate Controller from
February 1995 to November 1998. Prior to joining Veeco, Mr. Kiernan was an Audit Senior Manager at
Ernst & Young LLP from October 1991 through January 1995 and held various audit staff positions
with Ernst & Young LLP from June 1984 through September 1991.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires Veeco’s officers and directors, and persons who own more
than 10% of Veeco’s common stock to file reports of ownership and changes in ownership with the
SEC. These persons are required by SEC regulations to furnish Veeco with copies of all Section 16(a)
forms they file. SEC regulations require us to identify in this proxy statement anyone who filed a
required report late or failed to file a required report. Based on our review of forms we received, or
written representations from reporting persons stating that they were not required to file these forms,
we believe that during 2012 all Section 16(a) filing requirements were satisfied on a timely basis.
Corporate Governance Policies and Practices
Veeco has instituted a variety of policies and practices to foster and maintain corporate governance,
including the following:
Corporate Governance Guidelines—Veeco adheres to written Corporate Governance Guidelines,
adopted by the Board and reviewed by the Governance Committee from time to time. The
Corporate Governance Guidelines relate to director qualifications, conflicts of interest, succession
planning, periodic board and committee self-assessment and other governance matters.
Code of Business Conduct—Veeco maintains written standards of business conduct applicable to all
of its employees worldwide.
62
Code of Ethics for Senior Officers—Veeco maintains a Code of Ethics that applies to its Chief
Executive Officer, Chief Financial Officer and Chief Accounting Officer.
Environmental, Health & Safety Policy—Veeco maintains a written policy that applies to all of its
employees with regard to environmental, health and safety matters.
Director Education Policy—Veeco has adopted a written policy under which it encourages directors
to attend, and provides reimbursement for the cost of attending, director education programs.
Disclosure Policy—Veeco maintains a written policy that applies to all of its employees with regard
to the dissemination of information.
Board Committee Charters—Each of Veeco’s Audit, Compensation, Governance and Strategic
Planning Committees has a written charter adopted by Veeco’s Board that establishes practices and
procedures for each committee in accordance with applicable corporate governance rules and
regulations.
Copies of each of these documents can be found on the Company’s website (www.veeco.com) via the
Investors page.
Board Leadership Structure
On May 4, 2012, Mr. Peeler, the Company’s Chief Executive Officer, was appointed Chairman of the
Board. We currently have a Lead Director separate from the Chairman of the Board. Although we do
not have a formal policy addressing the topic, we believe that when the Chairman of the Board is an
employee of the Company or otherwise not independent, it is important to have a separate Lead
Director, who is an independent director.
Mr. McDaniel serves as the Lead Director. In that role, he presides over the Board’s executive
sessions, during which our independent directors meet without management, and serves as the principle
liaison between management and the independent directors of the Board. Mr. McDaniel has served as
a Veeco director since 1998.
We believe the combination of Mr. Peeler as our Chairman of the Board and Mr. McDaniel as our
Lead Director is an effective structure for the Company. The division of duties and the additional
avenues of communication between the Board and our management associated with having Mr. Peeler
serve as Chairman of the Board and Mr. McDaniel as Lead Director provides the basis for the proper
functioning of our Board and its oversight of management.
Oversight of Risk Management
The Board has an active role, as a whole and also at the committee level, in overseeing management of
the Company’s risks. The Board regularly reviews information regarding the Company’s strategy,
finances and operations, as well as the risks associated with each. The Audit Committee is responsible
for oversight of Company risks relating to accounting matters, financial reporting, internal controls and
legal and regulatory compliance. The Audit Committee undertakes, at least annually, a review to
evaluate these risks. Individual members of the Audit Committee are each assigned an area of risk to
oversee. The members then meet separately with management responsible for such area, including the
Company’s chief accounting officer, internal auditor and general counsel, and report to the Committee
on any matters identified during such discussions with management. In addition, the Governance
Committee manages risks associated with the independence of the Board and potential conflicts of
interest. The Company’s Compensation Committee is responsible for overseeing the management of
risks relating to the Company’s executive compensation plans and arrangements. While each committee
is responsible for evaluating certain risks and overseeing the management of such risks, the entire
Board is regularly informed through committee reports about such risks.
63
Compensation Risk
Our Compensation Committee conducted a risk-assessment of our compensation programs and
practices and concluded that our compensation programs and practices, as a whole, are appropriately
structured and do not pose a material risk to the Company. Our compensation programs are intended
to reward the management team and other employees for strong performance over the long-term, with
consideration to near-term actions and results that strengthen and grow our Company. We believe our
compensation programs provide the appropriate balance between short-term and long-term incentives,
focusing on sustainable operating success for the Company. We consider the potential risks in our
business when designing and administering our compensation programs and we believe our balanced
approach to performance measurement and compensation decisions works to mitigate the risk that
individuals will be encouraged to undertake excessive or inappropriate risk. Further, our compensation
program administration is subject to considerable internal controls, and when determining the principal
outcomes—performance assessments and compensation decisions—we rely on principles of sound
governance and good business judgment.
Board Meetings and Committees
During 2012, Veeco’s Board held ten meetings. Each Director attended at least 75% of the meetings of
the Board and Board committees on which such Director served during 2012. It is the policy of the
Board to hold executive sessions without management at every regular quarterly board meeting and as
requested by a Director. The Lead Director presides over these executive sessions. All members of the
Board are welcome to attend the Annual Meeting of Stockholders. In 2012, Mr. Peeler was the only
director who attended the Annual Meeting of Stockholders. The Board has established the following
committees: an Audit Committee, a Compensation Committee, a Governance Committee and a
Strategic Planning Committee.
Audit Committee
As defined in Section 3(a)(58)(A) of the Exchange Act, the Company has established an Audit
Committee which reviews the scope and results of the audit and other services provided by Veeco’s
independent registered public accounting firm. The Audit Committee consists of Messrs. Jackson,
McDaniel and Simone (Chairman). The Board has determined that all members of the Audit
Committee are financially literate as that term is defined by Nasdaq and by applicable SEC rules.
The Board has determined that each of Messrs. Jackson, McDaniel and Simone is an ‘‘audit
committee financial expert’’ as defined by applicable SEC rules. During 2012, the Audit Committee
met fourteen times.
Compensation Committee
The Compensation Committee sets the compensation levels of senior management and administers
Veeco’s stock incentive plans. All members of the Compensation Committee are ‘‘non-employee
directors’’ (within the meaning of Rule 16b-3 of the Exchange Act), and ‘‘outside directors’’ (within
the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the ‘‘Code’’)).
None of the members of the Compensation Committee has interlocking relationships as defined by
the SEC. The Compensation Committee consists of Messrs. D’Amore, Hunter and McDaniel
(Chairman). During 2012, the Compensation Committee met six times.
Governance Committee
The Company’s Governance Committee addresses Board organizational issues and develops and
reviews corporate governance principles applicable to Veeco. In addition, the committee searches
for persons qualified to serve on the Board of Directors and makes recommendations to the Board
64
with respect thereto. The Governance Committee currently consists of Messrs. Hunter (Chairman)
and Simone. During 2012, the Governance Committee met three times.
Strategic Planning Committee
The Company’s Strategic Planning Committee oversees the Company’s strategic planning process.
The Strategic Planning Committee consists of Messrs. Braun (Chairman), D’Amore, Hunter and
Peeler. During 2012, the Strategic Planning Committee met five times.
Compensation of Directors
The following table provides information on compensation awarded or paid to the non-employee
directors of Veeco for the fiscal year ended December 31, 2012.
Name
Edward H. Braun(5) .
Richard A. D’Amore
Joel A. Elftmann(6) .
Gordon Hunter . . . .
Keith D. Jackson . . .
Roger D. McDaniel .
Peter J. Simone . . . .
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Fees Earned or
Paid in Cash
($)(1)
Stock
Awards
($)(2)(3)
All Other
Compensation
($)(4)
Total ($)
113,652
66,000
36,221
78,556
59,111
109,000
103,000
99,976
99,976
—
99,976
119,115
99,976
99,976
2,668
—
—
—
—
—
—
216,296
165,976
36,221
178,532
178,226
208,976
202,976
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.
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.
.
.
(1) Represents quarterly retainers and meeting fees paid for Board service during 2012. Includes
payments for service and attendance at certain meetings held at the end of 2012 for which
payments were made during the first quarter of 2013. For Mr. Braun, includes payments under the
Service Agreement dated January 1, 2012, which sets forth the compensation terms for
Mr. Braun’s service to the Board.
(2) Reflects awards of 2,837 shares of restricted stock to each director on May 7, 2012, other than
Mr. Jackson, who received an award of 3,403 shares of restricted stock on February 24, 2012, and
an award of 543 shares of restricted stock on May 7, 2012. These restricted stock awards vest on
the earlier of the first anniversary of the date of grant and the date of the next annual meeting of
stockholders (with the exception of Mr. Jackson’s February 24, 2012 award, which vested on the
date immediately preceding the date of the 2012 annual meeting of stockholders). In accordance
with SEC rules, the amounts shown reflect the grant date fair value of the award, which was $35.24
per share for awards made on May 7, 2012, and $29.38 per share for Mr. Jackson’s award on
February 24, 2012.
(3) As of December 31, 2012, there were outstanding the following aggregate number of stock awards
and option awards held by each non-employee director of the Company:
Outstanding Equity Awards at Fiscal Year End
Name
Edward H. Braun . . .
Richard A. D’Amore .
Gordon Hunter . . . . .
Keith D. Jackson . . .
Roger D. McDaniel . .
Peter J. Simone . . . . .
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65
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Stock
Awards (#)
Option
Awards (#)
2,837
2,837
2,837
543
2,837
2,837
50,000
—
—
—
—
—
(4) All Other Compensation consists of a 401(k) matching contribution ($1,385) and premiums for
group term life insurance ($1,283) payable to Mr. Braun under the Service Agreement dated
January 1, 2012.
(5) Reflects the compensation paid to Mr. Braun as a Director under the Service Agreement dated
January 1, 2012, including set compensation ($97,847) plus quarterly retainers and meeting fees
paid during 2012 ($15,805).
(6) Mr. Elftmann left the Board effective as of May 4, 2012.
Director Compensation Policy
Veeco’s Director Compensation Policy provides that members of the Board of Directors who are not
employees of Veeco shall be paid a retainer of $10,000 per quarter, plus additional retainers of $2,500
per quarter for the chairman of the Compensation Committee and the chairman of the Governance
Committee, $3,750 per quarter for the chairman of the Audit Committee, and $3,750 per quarter for
the Lead Director. In addition, non-employee Directors receive a fee of $2,000 for attending each
board, committee or stockholder meeting held in person and $1,000 for participating in each board or
committee meeting held by conference call. Each non-employee Director also receives an annual grant
of shares of restricted stock having a fair market value in the amount determined by the Compensation
Committee from time to time. The Compensation Committee has determined that the value of this
annual award should be $100,000 per director. The restrictions on these shares lapse on the earlier of
the first anniversary of the date of grant and the date of the next annual meeting of stockholders. In
addition, the Company’s director compensation policy gives the Board the authority to compensate
Directors who perform significant additional services on behalf of the Board or a Committee. Such
compensation shall be determined by the Board in its discretion, taking into consideration the scope
and extent of such additional services. Directors who are employees, such as Mr. Peeler, do not receive
additional compensation for serving as Directors or for attending board, committee or stockholder
meetings.
66
Braun Service Agreement
Mr. Braun, the Company’s former Chairman and former CEO, serves on the Board and is
compensated for such service pursuant to a Service Agreement dated January 1, 2012 (which amended
and replaced a Service Agreement dated July 24, 2008). The Service Agreement provides that, during
the period from January 1, 2012 through May 4, 2012 (the ‘‘2012 Service Period’’), Mr. Braun shall be
compensated at a rate of $200,000 per year, pro-rated as appropriate. The Service Agreement further
provides that during the 2012 Service Period, (a) Mr. Braun shall be entitled to participate in all group
health and insurance programs available generally to senior executives of the Company, including, in
the case of health programs, continued coverage for Mr. Braun’s spouse and eligible dependents, and
(b) Mr. Braun shall not be entitled to any additional compensation, including, without limitation,
bonuses, equity awards, meeting fees, retainers or other compensation for his service on the Board.
Following the expiration of the 2012 Service Period, the Company shall pay Mr. Braun such
compensation and equity awards as are consistent with the Company’s then current Board
Compensation Policy, provided that any annual and/or quarterly cash retainers shall be paid through
the Company’s regular, bi-weekly payroll process. In addition, Mr. Braun shall be entitled to participate
in all group health and insurance programs available generally to senior executives of the Company.
While serving on the Board, Mr. Braun shall be treated as an employee for purposes of the Company’s
stock incentive plans and any prior employment agreements which Mr. Braun had with the Company.
Certain Contractual Arrangements with Directors and Executive Officers
Veeco has entered into indemnification agreements with each of its directors, executive officers and
certain senior officers and anticipates that it will enter into similar agreements with any future directors
and executive officers. Generally, the indemnification agreements are designed to provide the maximum
protection permitted by Delaware law with respect to indemnification of a director or executive officer.
The indemnification agreements provide that Veeco will indemnify such persons against certain
liabilities that may arise by reason of their status or service as a director or executive officer of the
Company and that the Company will advance expenses incurred as a result of proceedings against them
as to which they may be indemnified. Under the indemnification agreements, a director or executive
officer will receive indemnification if he or she is found to have acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interests of Veeco and with respect to
any criminal action, if he or she had no reasonable cause to believe his or her conduct was unlawful.
Audit Committee Report
The Audit Committee is responsible for providing independent objective oversight of the Company’s
auditing, accounting, financial reporting process, its system of internal controls, and legal and ethical
compliance on behalf of the Board of Directors. The Committee operates under a charter adopted by
the Board, a copy of which is available on Veeco’s website (www.veeco.com). Management has the
primary responsibility for the financial statements and the reporting process including the system of
internal control over financial reporting. In fulfilling its oversight responsibilities, the Audit Committee
reviewed and discussed the audited financial statements included in the Annual Report on Form 10-K
for the fiscal year ended December 31, 2012 (the ‘‘Annual Report on Form 10-K’’) and the quarterly
financial statements for 2012 with management, including the specific disclosures in the section entitled
‘‘Management Discussion and Analysis of Financial Condition and Results of Operations.’’ The review
with management included a discussion of the quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgments and the clarity of disclosures in the financial
statements. The Chairman of the Audit Committee provided active oversight for the accounting review
described in the Explanatory Note above and the other members of the Audit Committee received
periodic updates and provided additional oversight for the accounting review.
67
The Committee reviewed with the independent registered public accounting firm, who is responsible for
expressing an opinion on the conformity of those audited financial statements with U.S. generally
accepted accounting principles, their judgments as to the quality, not just the acceptability, of the
Company’s accounting principles and such other matters as are required to be discussed with the Audit
Committee by SAS 61, as amended by SAS 90, Communication with Audit Committees and PCAOB
Auditing Standard No. 5, An Audit of Internal Control Over Financial Reporting That is Integrated With
an Audit of Financial Statements and related Independence Rule and Conforming Amendments. In
addition, the Audit Committee has discussed with the independent registered public accounting firm
the auditors’ independence from management and the Company including the matters in the written
disclosures and the letter from the independent auditors required by the applicable requirements of the
Public Company Accounting Oversight Board regarding the independent accountant’s communications
with the Audit Committee concerning independence, and the matters required to be discussed by
SAS 90 and considered the compatibility of non-audit services with the auditors’ independence and
satisfied itself as to the independence of the independent registered public accounting firm.
During 2012, management evaluated the Company’s system of internal control over financial reporting
in accordance with the requirements set forth in Section 404 of the Sarbanes-Oxley Act of 2002 and
related regulations. The Audit Committee was kept apprised of the progress of the evaluation and
provided oversight and advice to management during the process. In connection with this oversight, the
Committee received periodic updates provided by management and the independent registered public
accounting firm at each regularly scheduled Audit Committee meeting. At the conclusion of the
process, management provided the Audit Committee with a report on the effectiveness of the
Company’s internal control over financial reporting. The Audit Committee also reviewed the report of
management contained in the Company’s Annual Report on Form 10-K filed with the SEC, as well as
the Reports of Independent Registered Public Accounting Firm (included in the Company’s Annual
Report on Form 10-K). These reports related to its audit of (i) the consolidated financial statements
and (ii) the effectiveness of internal control over financial reporting. The Committee continues to
oversee the Company’s efforts related to its internal control over financial reporting and management’s
preparations for the evaluations in fiscal 2013.
The Audit Committee discussed with the Company’s internal auditors and independent registered
public accounting firm the overall scope and plans for their respective audits. The Audit Committee
meets with the internal auditors and independent registered public accounting firm with and without
management present, to discuss the results of their examinations, their evaluations of the Company’s
internal control over financial reporting, and the overall quality of the Company’s financial reporting.
The Committee held fourteen meetings during 2012. In addition, the Chairman of the Audit
Committee held numerous meetings during 2012 and 2013 with the Company and with representatives
of the independent registered public accounting firm in connection with the accounting review
discussed above.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to
the Board of Directors (and the Board approved) that the audited financial statements be included in
the Annual Report on Form 10-K for filing with the SEC. The Audit Committee and the Board have
also recommended, subject to stockholder approval, the selection of the Company’s independent
registered public accounting firm.
Keith D. Jackson
Roger D. McDaniel
Peter J. Simone (Chairman)
68
Item 11.
Executive Compensation
Compensation Discussion and Analysis
Veeco’s compensation programs for the named executive officers (‘‘NEOs’’) listed in the Summary
Compensation Table and the Company’s other executives are designed to aid in the attraction,
retention and motivation of these employees. The Company seeks to foster a performance-oriented
culture through these compensation programs by linking a significant portion of each executive’s
compensation to the achievement of performance targets important to the success of the Company and
its shareholders. This Compensation Discussion and Analysis describes Veeco’s current compensation
programs and policies, which are subject to change.
Executive Compensation Strategy and Objectives
The Company’s executive compensation strategy is designed to deliver competitive, performance-based
total compensation that reflects our culture and the markets we serve. The primary objectives of
Veeco’s executive compensation programs are to attract, retain and motivate executives critical to the
Company’s long-term growth and success resulting in the creation of increased shareholder value
without subjecting shareholders to unnecessary and unreasonable risks. To this end, the Company has
adopted the following guiding principles:
a.
Performance-based: Compensation levels should be determined based on Company, business
unit and individual results compared to quantitative and qualitative performance priorities set
at the beginning of the performance period. Additionally, the ratio of performance-based
compensation to fixed compensation should increase with the level of the executive, with the
greatest amount of performance-based at-risk compensation at the CEO level.
b.
Shareholder-aligned: Cash bonus metrics and equity-based compensation should represent a
significant portion of potential compensation to more closely align the interests of executives
with those of the shareholders.
c.
Fair and Competitive: Compensation levels should be fair, internally and externally, and
competitive with overall compensation levels at other companies in our industry, including
larger companies from which we may want to recruit.
Our compensation programs are comprised of four elements: base salary, cash bonus, equity-based
compensation and benefits and perquisites. Each of these programs is used to attract executives and
reward them for performance results. In addition to cash-based compensation, the Company uses
equity-based compensation to (i) align the interests of executives with stockholders in the creation of
long-term value, (ii) retain employees through the use of vesting schedules, and (iii) foster a culture of
stock ownership. The Company provides cost-effective benefits and perquisites it believes are required
to remain competitive, with the goal of promoting enhanced employee productivity and loyalty to the
Company.
Additional information regarding each element of our compensation program is described below.
Process for Making Compensation Decisions
The Compensation Committee of the Board (the ‘‘Committee’’) administers the Company’s
compensation programs operating under a charter adopted by the Board of Directors. This charter
authorizes the Committee to interpret the Company’s compensation, equity and other benefit plans and
establish the rules for their implementation and administration. The Committee consists of three
non-employee directors who are appointed annually. The Committee works closely with the Chief
Executive Officer (‘‘CEO’’) and the Senior Vice President, Human Resources and relies upon
information provided by independent compensation consultants.
69
In making compensation decisions, the Committee considers the compensation practices and the
competitive market for executives at companies with which we compete for talent. To this end, the
Company utilizes a number of resources which, during 2012, included: meetings with Compensation
Strategies, Inc., an independent compensation consultant; compensation surveys prepared by Radford;
and executive compensation information compiled by Compensation Strategies, Inc. from the proxy
statements of other companies, including a peer group.
In 2012, our peer group (the ‘‘Peer Group’’) consisted of sixteen companies. Following a review of
companies operating in the same general industry as Veeco with revenues within a comparable range,
four companies were removed from the Peer Group in 2012 because their revenues fell outside the
comparable range: Electro Scientific Industries, Inc., FSI International Inc., LTX Credence
Corporation, and Ultra Clean Holdings, Inc. In addition, two companies were removed from the Peer
Group in 2012 because they were acquired during the period: Varian Semiconductor Equipment
Associates and Verigy Limited. For 2012, the Peer Group consisted of the following companies:
Applied Materials Inc.
Axcelis Technologies Inc.
Brooks Automation Inc.
Coherent Inc.
Coho, Inc.
Cymer, Inc.
GT Advanced Technologies Inc.
KLA-Tencor Corporation
Kulicke and Soffa Industries, Inc.
Lam Research Corporation
MKS Instruments, Inc.
Newport Corporation
Novellus Systems, Inc.
Teradyne, Inc.
Tessera Technologies, Inc.
Ultratech Inc.
Compensation Strategies uses statistical regression techniques to adjust the market data to construct
market pay levels that are reflective of Veeco’s size based on revenues.
The Company considers the executive compensation practices of the companies in its Peer Group and
the Radford survey (collectively, the ‘‘market data’’) as only one of several factors in setting
compensation. The Company does not target a percentile range within the Peer Group and instead uses
the market data only as a reference point in its determination of the types and amount of
compensation based on its own evaluation. For 2012, total compensation of Veeco’s NEOs and other
executives is believed to be generally within the 50th to 75th percentile of the market, although
individuals may be compensated above or below this level for various reasons including but not limited
to competitive factors, Veeco’s financial and operating performance and consideration of individual
performance and experience.
In addition to reviewing the market data, the Committee meets with the Company’s CEO and Senior
Vice President, Human Resources to consider recommendations with respect to the compensation
packages for the NEOs and other executives. These recommendations include base salary levels, cash
bonus targets, equity compensation awards and benefit and perquisite programs. The Committee
considers these recommendations along with other factors in determining specific compensation levels
for the NEOs.
The Committee discusses the elements of the CEO’s compensation with him but makes the final
decisions regarding his compensation without him present. The Committee presents its
recommendations to the full Board of Directors for final approval, without the CEO present.
Decisions regarding the Company’s compensation program elements are made by the Committee in
regularly scheduled meetings. The Committee also meets to consider ad hoc issues. Issues of significant
importance are frequently discussed over several meetings. This practice provides the Committee with
the opportunity to raise and address concerns before arriving at a decision. Prior to each meeting, the
Committee is provided with the written materials, information and analysis, as may be required to assist
the Committee in its decision-making process. To the extent possible, meetings of the Committee are
70
conducted in person; where this is not possible, meetings are conducted telephonically. The CEO and
the Senior Vice President, Human Resources are regularly invited to attend Committee meetings. The
Committee meets privately in executive sessions to consider certain matters, including, but not limited
to, the compensation of the CEO.
The accounting review described in the Explanatory Note above impacted certain of the Company’s
executive compensation practices including the calculation of 2012 bonus awards, the 2013 annual
equity award process and the vesting of restricted stock unit awards previously granted. The impact on
each of these practices is discussed below in the relevant section.
Elements of Our Compensation Program
The Company seeks to achieve its compensation objectives through four key elements of compensation:
• Base Salary,
• Cash Bonus,
• Equity-based Compensation and
• Benefits and Perquisites.
Base Salary
The Company pays base salaries to attract executives and reward them for performance. Base salaries
are determined in accordance with the responsibilities of each executive, market data for the position
and the executive’s experience and individual performance. The Company considers each of these
factors but does not assign a specific value to any one factor.
In January 2012, following a review of the market data and individual performance results, including
management’s recommendations, and in recognition of his promotion to Executive Vice President,
Process Equipment, the Committee approved an increase in base salary for Dr. Miller from $385,000 to
$415,002.
Base salaries for executives are typically set during the first half of the year in conjunction with the
Company’s annual performance management process. However, in April 2012, following a review of the
market data and management’s recommendations in connection with the Company’s cost reduction
initiatives, the Committee decided to maintain base salaries for the other NEOs at their current levels.
Cash Bonus Plans
The Company provides the opportunity for cash bonuses under its annual Management Bonus Plan
and, in the case of sales executives including Mr. Collingwood, the Sales Commission Plan, to attract
executives and reward them for performance consistent with the belief that a significant portion of the
compensation of its executives should be performance-based. As a result, individuals are compensated
based on the achievement of specific financial and individual performance goals intended to correlate
closely with shareholder value. The Company believes that the opportunity to earn cash bonuses
motivates executives to meet Company performance objectives that, in turn, are linked to the creation
of shareholder value. The cost of bonus awards is factored into financial performance results before
bonus awards are determined. This ensures that the cost of our bonus plans is included in our financial
results. Executives must generally be employees at the end of the applicable performance period to be
eligible to receive a bonus for that period, a feature that aids in the retention of talent.
71
Target bonus awards under the Management Bonus Plan for each NEO are expressed as a percentage
of base salary. For 2012, the target bonus for the CEO was 100% and the target bonuses for
Messrs. Glass, Collingwood and Kiernan were 70%, 30%, and 50%, respectively. In January 2012, in
recognition of his promotion to Executive Vice President, Process Equipment, the Committee approved
an increase in the target bonus for Dr. Miller from 60% to 70%.
In 2012, the Management Bonus Plan for the NEOs and all other executives was comprised of (i) the
annual Management Incentive Plan, the target bonus for which is equal to 75% of each NEO’s
Management Bonus Plan target bonus, and (ii) the quarterly Management Profit Sharing Plan, the
target bonus for which is equal to 25% of each NEO’s Management Bonus Plan target bonus.
In the fourth quarter of 2012, the Company’s accounting review commenced and the calculation and
payment of 2012 bonuses including the fourth quarter 2012 Management Profit Sharing Plan and the
full year 2012 Management Incentive Plan was suspended pending completion of the accounting review
and a return to timely financial reporting. Following completion of the accounting review, bonuses
under each of the aforementioned plans were calculated based on the financial results as reported in
the Form 10-K for 2012.
2012 Management Incentive Plan
In January 2012, the Committee adopted the 2012 Management Incentive Plan (the ‘‘MIP’’) which was
based on the financial performance of the Company as measured primarily by adjusted earnings before
interest, income taxes and amortization, excluding certain items (‘‘EBITA’’). EBITA is the financial
measure used by the Company as the primary measure of financial performance. The MIP also
incorporates secondary performance measures including: (1) revenue, (2) bookings, and (3) individual
performance.
If EBITA results exceeded a pre-determined threshold, MIP funding targets were adjusted, ranging
from 50% of the target (for threshold performance) to 100% of the target (for target performance) to
200% of the target (for maximum or greater performance). No awards were earned under the MIP if
EBITA results were less than the threshold performance level. Otherwise, the adjusted MIP funding
target was divided into three secondary elements: (1) Revenue (weighted at 30%), (2) Bookings
(weighted at 30%), and (3) Individual Performance (weighted at 40%).
Actual bonus awards under the MIP were based on these secondary measures, each as compared to
targets, calculated independently and then added together. Awards under each of the secondary
performance measures could range from 70% of target for threshold performance to 100% for target
performance and 150% for maximum or greater performance with no award for performance less than
threshold. In the case of individual performance, awards may be decreased but not increased based on
individual performance results.
Following the accounting review and the completion of our 2012 financial statements, the Committee
compared performance results to pre-established targets for each element of the plan for fiscal 2012.
Bonus payments under the MIP were calculated as follows: Each NEO’s MIP target was first modified
by the performance of the primary element (EBITA) resulting in an adjusted funding target. The
adjusted funding target was then divided into three secondary elements, with weights as described
above, and a bonus award for each element was calculated based on the comparison of actual results to
the pre-established targets. The final MIP award was the sum of the three secondary elements, each as
72
adjusted for performance results. The following tables illustrate performance versus plan and the
resulting bonus award for each financial element (dollars in thousands):
Primary Element
EBITA
Target
Veeco Consolidated . . . . . . . . . . . . . . . . . . . . . . .
$77,768
Plan
Performance
Funding
Target
Adjustment
79.90%
59.80%
Secondary Elements
Revenue
Plan
Performance
Target
Veeco Consolidated . . . . . . . . . . . . . . .
$571,129
90.40%
Bonus
Award
Target
85.50% $617,177
Bookings
Plan
Performance
Bonus
Award
63.50%
0%
Awards for individual performance were based on results compared to goals set by the CEO at the
beginning of the year in connection with the Company’s performance management process. The CEO’s
individual performance goals were set by the Board at the beginning of the year. Mr. Peeler’s individual
performance goals and bonus award are discussed in more detail in the ‘‘Compensation of the Chief
Executive Officer’’ section below.
Mr. Peeler evaluated the individual performance of the other NEOs and executives by reviewing the
goals set at the beginning of the year and determining the level of achievement of each goal. The goals
were not weighted and the award was considered on the totality of the individual performance results
for each executive. Individual performance results could range from zero to 100%. After evaluation,
Mr. Peeler made individual performance recommendations to the Committee, for each of the other
NEOs, equal to 100%.
73
The individual goals for the NEOs (other than Mr. Peeler, whose goals are discussed in the section
‘‘Compensation of the Chief Executive Officer’’ below) are described in the table below.
NEO
Position
2012 Individual Performance Goals
D. Glass
Executive Vice President and
Chief Financial Officer
1. Help drive Veeco’s acquisition strategy and decision process.
2. Drive improvements in metrics and measure progress toward
goals in delivering services and consumables.
3. Continue to enhance business and financial processes
commensurate with managing results during industry
down-cycle.
4. Implement a new finance organization structure.
5. Drive Veeco-wide expense reduction and cash generation
improvements during industry down-cycle.
6. Enhance IT team performance and drive to best-in-class
benchmark performance vs. peer companies.
W. Miller
Executive Vice President,
Process Equipment
1. Implement PLC methodology and discipline to improve
product development success rate.
2. Refine and strengthen services strategy and deliver service
revenue growth.
3. Development of leadership and organization.
4. Drive acquisition strategy.
5. Expand key account structure to sell multiple BU products
cohesively to key accounts.
6. Implement a responsive field/factory escalation process and
make technical support a competitive weapon.
P. Collingwood Senior Vice President,
Worldwide Sales & Service
1.
2.
3.
4.
J. Kiernan
1. Support merger and acquisition activity.
2. Create a competitive advantage for Veeco by (a) introducing
lease financing alternatives and (b) streamlining customer
touch points from quote to cash.
3. Continue to drive excellence in financial reporting accuracy
and controls.
4. Implement a new finance organization structure.
5. Deliver solid financial performance during industry
down-cycle.
Senior Vice President, Finance
and Corporate Controller
Grow market share in top 15 accounts.
50% growth in services bookings.
Product growth in 2012.
Achieve specific regional goals.
As a result of financial performance for EBITA, revenue and bookings and individual performance,
Messrs. Peeler, Glass, Collingwood and Kiernan and Dr. Miller earned MIP awards for 2012 equal to
39.3% of their MIP target bonus or $206,274, $79,416, $28,311, $42,231 and $85,604, respectively. After
reducing these awards to account for the excess Management Profit Sharing Plan payments made with
respect to Q3 2012 (described below), the MIP awards for 2012 for Messrs. Peeler, Glass, Collingwood
and Kiernan and Dr. Miller are $200,483, $77,186, $27,549, $41,045 and $83,201, respectively.
2012 Management Profit Sharing Plan
In January 2012, the Committee approved the 2012 Management Profit Sharing Plan (the ‘‘MPSP’’).
Awards under the MPSP were earned when quarterly Company EBITA was at least 5% of revenue for
the period, in which case a pool comprised of 2.36% of EBITA (as determined in January 2012 based
on the sum of the target profit sharing bonuses for all participants and planned 2012 EBITA) was
funded. Awards to participants were made from this pool in accordance with their target bonus
74
amounts. The Company’s 2012 quarterly EBITA (as a percentage of Company revenue) and the profit
sharing award for each quarter (as a percentage of the target bonus) are set forth in the chart below.
Q1
EBITA (as % of Revenue) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Award (as % of Target Bonus) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Q2
Q3
Q4
18.1% 14.9% 13.0% <5%
146.2% 113.4% 93.9% 0%
Following the conclusion of the accounting review and the completion of our 2012 financial statements,
the Committee reviewed the 2012 MPSP payments made in Q1, Q2 and Q3 and determined that
awards paid for Q3 2012 were overstated relative to adjusted financial results. Q3 EBITA, as a
percentage of revenue, was revised downward to 10.7% (from 13.0%) and the Q3 MPSP Award was
reduced to 80.6% (from 93.9%).
Any excess Q3 MPSP payments were deducted from amounts payable under the 2012 MIP awards.
Messrs. Peeler, Glass, Collingwood and Kiernan and Dr. Miller were paid 2012 awards of $154,652,
$59,541, $20,347, $31,662 and $64,181, respectively, and earned 2012 awards of $148,861, $57,311,
$19,586, $30,476 and $61,777, respectively.
2012 Sales Commission Plan
The Company’s Sales Commission Plan provides eligible participants, including Mr. Collingwood, with
an opportunity to earn cash commissions based on the achievement of sales objectives, or quotas.
Mr. Collingwood’s 2012 target under the Sales Commission Plan was $122,800, which was based on a
quota of $617.177M. For 2012, 25% of commissions are earned at the time of booking, with the
balance earned upon revenue recognition. Mr. Collingwood’s quota was established in early 2012.
Mr. Collingwood achieved 64% of his quota, which will result in commissions of $80,537 upon
completion of revenue recognition.
2012 Supplemental Services Bonus Plan
In March 2012, the Committee approved the 2012 Supplemental Services Bonus Plan (the ‘‘SSBP’’).
The Plan was established to provide a specific incentive for participants to achieve the Company’s 2012
services revenue plan.
Awards under the SSBP were based on 2012 total Company services revenue. Each of the participants
in the Company’s 2012 Management Bonus Plan participated in the SSBP, including Messrs. Peeler,
Glass, Collingwood and Kiernan and Dr. Miller. The target bonuses, as a percentage of base salary, for
Messrs. Peeler, Glass, Collingwood and Kiernan and Dr. Miller were 7.5%, 5.25%, 4.5%, 3.75% and
10.5%, respectively. Awards under the Plan ranged from 0% to 300% of target and were calculated for
results between threshold ($125M, at which 20% of the target bonus would be paid and below which
no bonus would be paid), target ($148M, at which 100% of the target bonus would be paid) and
maximum ($200M, at which 300% of the target bonus would be paid). Participants must have been
active employees on December 31, 2012 to have been eligible for an award. Awards, if earned, would
have been paid during the first quarter of 2013.
No awards were earned or paid under the SSBP because the actual results were less than the threshold.
Summary of 2012 Cash Bonus Awards
Under the 2012 Cash Bonus Plans, as described above, the total awards earned by Messrs. Peeler,
Glass, Collingwood and Kiernan and Dr. Miller was equal to $355,135, $136,727, $128,433, $72,707 and
$147,382, respectively.
75
2013 Cash Bonus Plans
In January 2013, the Committee elected to defer adoption of the 2013 Management Bonus Plan (the
‘‘MBP’’), including the Management Incentive Plan and the Management Profit Sharing Plan, for the
first half of the year in connection with the Company’s cost-reduction efforts. The Committee also
confirmed its intention to consider reinstating the MBP for the second half of the year. In July 2013,
the Committee elected to not adopt a 2013 MBP.
Equity-Based Compensation
The Company believes that a substantial portion of an executive’s compensation should be awarded in
equity since equity-based compensation is directly linked to shareholder interests. The Company grants
equity-based awards, such as stock options and restricted stock or restricted stock units (‘‘restricted
stock’’), to the NEOs and certain other key employees to create a clear and meaningful alignment
between compensation and shareholder return and to enable the NEOs and other employees to
develop and maintain a stock ownership position. Equity-based awards vest over time and, in certain
cases as a function of performance, and are subject to the recipient’s continued employment, therefore
also acting as a significant retention incentive.
The Company uses a combination of stock option grants and performance-based restricted stock awards
as elements of a cost-effective, long-term incentive compensation strategy. Because stock options have
intrinsic value to the holder only if the Company’s stock price increases, the Committee believes that
higher-level executives should receive a greater portion of their long term incentive in the form of stock
options. The Committee believes that performance-based restricted stock awards are an effective means
for creating stock ownership among the Company’s executives and incentivizing key performance
objectives.
The Company considered several factors in the design of the 2012 annual equity award process. Long
term incentive compensation guidelines, denominated as a dollar value and based on the market data
(as discussed above), were developed for each of the NEOs and the other executives. The Company
determined the value of its stock options based on the Black-Scholes option valuation methodology.
Performance-based restricted stock awards were valued at fair market value. The guideline value for
each NEO was then split between stock options and restricted stock awards with a designated ratio.
The actual number of stock options or restricted stock awards granted to each individual was based on
several factors including, but not limited to, a fixed budget for awards, the Company’s guidelines (as
described above), the individual’s level of responsibility, past performance and ability to affect future
Company performance and noteworthy achievements. The CEO applied these factors, in a review of
each of his direct reports, and made equity award recommendations to the Committee. The CEO
discussed the rationale for his recommendations with the Committee. The Committee then approved a
schedule setting forth all awards to all employees, on an individual-by-individual basis.
On May 25, 2012, the Committee granted stock option and performance-based restricted stock awards
to the NEOs as follows:
Date of
Grant
Name
John Peeler . . . . .
David Glass . . . . .
William Miller . . .
Peter Collingwood
John Kiernan . . . .
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5/25/12
5/25/12
5/25/12
5/25/12
5/25/12
Stock Options
Exercise
Amount
Price
Restricted Stock
Fair Market
Value Per
Amount
Share
80,000
30,000
35,000
20,000
18,500
30,000
9,500
10,200
6,500
5,750
$33.00
$33.00
$33.00
$33.00
$33.00
$33.00
$33.00
$33.00
$33.00
$33.00
The Committee considered the following factors in determining the equity awards for each NEO. Stock
option awards and performance-based restricted stock grants to Mr. Peeler are discussed under
‘‘Compensation of the Chief Executive Officer’’ below. In determining the award to Mr. Glass, the
Committee took into account his leadership of the Company’s finance function, the positive
contributions he made to the Company over the prior year and the total value of his compensation
when compared to market data. Dr. Miller’s equity awards were determined after taking into account
his continued strong contributions to the Company’s Process Equipment Group, the total value of his
compensation when compared to market data and his promotion to Executive Vice President, Process
Equipment. Mr. Collingwood’s equity awards reflect his significant contributions to the Company’s
global sales and services organization over the previous year and the total value of his compensation
when compared to market data. Mr. Kiernan’s equity awards were determined after taking into account
his contributions to the Company and the total value of his compensation package compared to market
data.
Stock option awards, including those granted in 2012, reflect an exercise price equal to the closing price
of Veeco common stock on the trading day prior to the grant date, have a term of ten years from the
grant date and become exercisable over a three year period with one third of the award becoming
exercisable on each of the first three anniversaries of the grant. All of the restricted stock awards
granted to the NEOs on May 25, 2012 are subject to the achievement of designated performance
criteria. The restricted stock awards are eligible for vesting over a four (4) year period based on
achievement of EBITA goals as follows: 100% of the award will vest if EBITA for the four fiscal
quarters ended June 30, 2013 (the ‘‘initial performance period’’) is at least 10% of revenue and 25% of
the award will vest if EBITA is at least 6% of revenue (with prorated vesting for results between the
threshold and target amounts). If all or any portion of the award does not vest based on performance
during the initial performance period, then 100% of the award will vest if EBITA for the four fiscal
quarters ending September 30, 2013 is at least 8% of revenue, and 25% vest if EBITA is at least 4% of
revenue (with prorated vesting for results between the threshold and target amounts). Once earned,
performance-based restricted stock awards vest, and are no longer subject to risk of forfeiture over a
four year period with one third of the award vesting on the second anniversary of the grant and an
additional one third of the award becoming vested on each of the next two anniversaries.
Except as otherwise set forth in the employment agreement between the Company and Mr. Peeler,
restricted stock awards granted in June 2008 vested 100% on the fifth anniversary of the grant and
were subject to accelerated vesting based on the achievement of certain two-year cumulative financial
performance objectives. As a result of 2008 and 2009 financial performance, the Company previously
determined that the vesting would not be accelerated under these provisions. Concerned that the
five-year vesting schedule, coupled with the fact that most outstanding stock options were significantly
underwater, would reduce the retention incentive of outstanding equity awards, the Committee
approved a three-year vesting schedule for the May 2009 restricted stock awards with one-third of each
award vesting on each of the first three anniversaries of the date of grant. The restricted stock awards
granted in June 2010 (other than to Messrs. Peeler and Glass) were subject to the general vesting
schedule of four years, with one third of the award vesting on the second anniversary of the grant and
an additional one third becoming exercisable on each of the next two anniversaries of the grant. Based
on achievement of pre-determined performance goals, the June 2010 restricted stock unit awards to
Messrs. Peeler and Glass were deemed to have been earned on August 2, 2011 with one third of the
award vesting on that date and another third vesting on August 2, 2012 and the remaining third would
have become vested on August 2, 2013 except for the then current suspension of vesting for restricted
stock unit awards as described below. The restricted stock awards granted in June 2011 to the NEOs,
including Messrs. Peeler and Glass, were based on the achievement of pre-determined performance
goals. These goals were deemed to have been met in July 2012 following which the awards commenced
vesting in accordance with the general four year vesting schedule, with one third of the award vesting
77
on the second anniversary of the grant and an additional one third becoming vested on each of the
next two anniversaries of the grant.
The Committee typically approves annual equity awards at a scheduled meeting, held during the two
month period following the annual meeting of stockholders and during an open trading window in
accordance with the Company’s Corporate Governance Guidelines. The 2012 equity awards were
approved by the Committee in accordance with this practice and the number of stock options and
restricted shares awarded to each employee, including the NEOs, was determined on May 25, 2012. As
with all equity awards, the stock option exercise price is the closing price of Veeco common stock on
the trading day prior to the grant date ($33.00 for stock options granted on May 25, 2012). The
Committee has not granted, nor does it intend to grant, equity compensation to executives in
anticipation of the release of material nonpublic or other information that could result in changes to
the price of the Company’s stock. Furthermore, the Committee has not ‘‘timed,’’ nor does it intend to
‘‘time,’’ the release of material nonpublic information based on equity award grant dates.
As a result of the Company’s delayed filing of this 2012 Form 10-K, on May 1, 2013 the Company
suspended the exercise of stock option awards and the delivery of shares for vested restricted stock unit
awards previously granted.
In addition, as a result of the accounting review being conducted at the time equity awards would have
normally been granted in 2013, the Committee determined that it was appropriate to delay the grant of
2013 equity awards until the accounting review was completed and following the subsequent meeting of
stockholders.
Say-on-Pay
Our Board of Directors, the Committee and our management value the opinions of our stockholders.
At the 2012 annual meeting of stockholders, more than 89% of the votes cast on the say-on-pay
proposal were in favor of our named executive officer compensation. The Board of Directors and the
Committee reviewed the final vote results and we did not make any changes to our executive
compensation program as a result of the vote results. We have determined that our stockholders should
vote on a say-on-pay proposal each year.
Benefits and Perquisites
The Company provides the benefits and perquisites to its executive officers that it believes are required
to remain competitive, with the goal of promoting enhanced employee productivity and loyalty to the
Company. The Committee periodically reviews the levels of benefits and perquisites provided to
executive officers. The NEOs participate in the Company’s 401(k) savings plan and other benefit plans
on the same basis as other similarly-situated employees. The Company provides a 401(k) savings plan
under which it provides matching contributions of fifty cents for every dollar an eligible employee
contributes, up to 6% of such employee’s eligible compensation. The plan calls for vesting of Company
contributions over the initial five years of a participant’s employment with the Company. The Company
also provides group term life insurance for its employees, including the NEOs. The amounts of the
Company’s 401(k) matching contributions and group term life insurance premiums for the NEOs are
included under the caption ‘‘All Other Compensation’’ in the Summary Compensation Table appearing
elsewhere in this Annual Report on Form 10-K. The Company also provides a car allowance for each
of the NEOs. Such amounts are also included under the caption ‘‘All Other Compensation’’ in the
Summary Compensation Table. The Company does not maintain other perquisite programs, such as
post-retirement health and welfare benefits, defined or supplemental pension benefits or deferred
compensation arrangements.
78
The Company adopted, in early 2009, the Senior Executive Change in Control policy intended to
provide specified executives, including Messrs. Collingwood, Glass, Kiernan and Dr. Miller, with certain
severance benefits in the event that their employment is terminated under qualifying circumstances
related to a Change in Control. The Committee recognizes that, as is the case for most publicly held
companies, the possibility of a change in control exists, and the Company wishes to ensure that the
NEOs are not disincentivized from discharging their duties in respect of a proposed or actual
transaction involving a change in control. Accordingly, the Company wanted to provide additional
inducement for such NEOs to remain in the employ of the Company. Before approving the policy, the
Committee reviewed similar practices at peer companies and a tally sheet illustrating the value of the
benefits provided to each covered employee under the policy.
Compensation of the Chief Executive Officer
Mr. Peeler’s compensation for 2012, which is consistent with the compensation objectives expressed
herein and determined in connection with his hiring in 2007, was designed to successfully recruit him to
and retain him at Veeco. His package originally reflected compensation at his previous employer,
including its efforts to retain him, and a review of the market data for CEO compensation. The
principal elements of Mr. Peeler’s compensation package include: (i) a base salary of $630,000 (which
was increased to $700,000 in 2011 and maintained at that level for 2012); (ii) eligibility for an annual
Management Bonus Plan award equal, at target, to 100% of his base salary; and (iii) a car allowance of
$1,500 per month.
In addition, the Company reimburses Mr. Peeler’s reasonable housing and related transportation
expenses. On April 25, 2012, the Company amended its employment agreement with Mr. Peeler. The
amendment extended the Company’s obligation to reimburse the reasonable housing expenses of
Mr. Peeler in the Woodbury, New York area and his transportation expenses to/from the Woodbury
area from/to his home in Maryland, including tax gross-up for these amounts, through April 25, 2015,
and provides that such amounts shall not exceed $150,000 per year. For 2012, the actual expenses
associated with Mr. Peeler’s housing and transportation allowance were approximately $48,618 (which
amount, when grossed-up for tax purposes, totaled approximately $94,349).
For 2012, Mr. Peeler earned a Management Incentive Plan award of $206,274, representing 39.3% of
his target. This amount was based on Veeco Consolidated EBITA, revenue and bookings each as
compared to pre-determined targets and a review of his performance against individual objectives. His
individual performance objectives included: (1) increasing the Company’s product portfolio and gaining
market share, (2) increasing the Company’s services and consumables business, (3) preparing the
Company’s talent and organization for long-term growth, and (4) delivering solid financial performance
during an industry down cycle. The Committee evaluated Mr. Peeler’s performance in executive session
and formulated and presented a recommendation to award Mr. Peeler 100% of the value for individual
performance to the full Board of Directors. The Board approved this recommendation. Mr. Peeler’s
Management Incentive Plan award will be paid in the fourth quarter of 2013.
Under the terms of the quarterly 2012 Management Profit Sharing Plan, Mr. Peeler earned $63,975,
$49,608, $35,277 and $0 for the first, second, third and fourth quarters of 2012, representing 146.2%,
113.4%, 80.6% and 0%, respectively, of his profit sharing target for the first, second, third and fourth
quarters of 2012. Profit-sharing awards were based on EBITA results.
Mr. Peeler’s 2012 equity compensation was comprised of a combination of stock options and
performance-based restricted stock. In conjunction with an analysis of Mr. Peeler’s total compensation
package, and taking into consideration market data, his strong performance during 2012 and the
importance of retaining him, the Committee formulated an equity compensation recommendation,
proposed this recommendation to the full Board of Directors, and on May 25, 2012, Mr. Peeler
received a performance-based restricted stock award of 30,000 shares of Veeco common stock and was
79
granted a stock option award to purchase 80,000 shares of Veeco common stock, the combined value of
which was consistent with the equity compensation practices described above. Mr. Peeler’s stock options
have an exercise price equal to the closing price of Veeco common stock on the trading day prior to
the grant date and are subject to the same terms as the Company’s other stock option awards, as
described above.
The Committee reviewed a tally sheet setting forth the components of compensation for Mr. Peeler,
including base salary, annual incentive bonus, stock option and restricted stock grants, potential stock
option and restricted stock gains, the dollar value to Mr. Peeler and cost to the Company of all
perquisites and other personal benefits. Based on its review, the Committee concluded that Mr. Peeler’s
compensation, in the aggregate, is reasonable and appropriate in light of our desire to retain him, the
stated objectives of the Company’s compensation programs and the Company’s financial and operating
performance.
Compensation of the Chief Financial Officer
On January 5, 2010, Veeco announced that David D. Glass would join the Company as Executive Vice
President and Chief Financial Officer. In connection with his appointment, the Company entered into
an agreement with Mr. Glass, effective January 18, 2010. Pursuant to the terms of the agreement,
Mr. Glass will be paid an annual base salary of $360,000 (which was increased to $385,000 in 2011 and
maintained at that level for 2012). He is eligible to participate in the Company’s Management Bonus
Plan, with a target bonus of 70% of base salary. Mr. Glass also receives a car allowance of $700 per
month. Mr. Glass is eligible for certain severance benefits in the event his employment is terminated by
the Company without cause or by him for good reason, including 18 months of salary continuation and
extended stock option exercise rights for up to 12 months following separation, not to exceed the
expiration date of the option. Mr. Glass has been named as a participant in the Company’s Senior
Executive Change in Control policy.
Other Employment Agreements: Letter Agreement with Dr. Miller
On January 30, 2012, the Company entered into a letter agreement with Dr. Miller in connection with
his promotion to the position of Executive Vice President, Process Equipment. The letter agreement
provides that Dr. Miller will be paid an annual base salary of $415,002. He will continue to participate
in the Company’s Management Bonus Plan with a target bonus increased to 70% of his base salary.
Dr. Miller will also be eligible for certain severance benefits in the event his employment is terminated
by the Company without cause or by him for good reason, including 52 weeks of salary continuation,
subsidized COBRA contributions during the period of salary continuation and extended stock option
exercise rights for up to 12 months following separation, not to exceed the expiration date of the
option. Dr. Miller was previously named as a participant in the Company’s Senior Executive Change in
Control policy.
Financial and Tax Considerations
In designing our compensation programs, the Company takes into account the financial impact and tax
effects that each element will or may have on the Company and the executives. Section 162(m) of the
Code limits Veeco’s tax deduction to $1,000,000 per year for compensation paid to each of the NEOs,
unless certain requirements are met. The Committee’s present intention is to structure executive
compensation so that it will be predominantly deductible, while maintaining flexibility to take actions
which it deems to be in the best interest of Veeco and its stockholders, even if these actions may result
in Veeco paying certain items of compensation that may not be fully deductible.
80
Conclusion
Attracting and retaining talented and motivated management and key employees is essential to creating
long-term shareholder value. Offering a competitive, performance-based compensation program with a
substantial equity component helps to achieve this objective by aligning the interests of the executive
officers and other key employees with those of shareholders. We believe that Veeco’s 2012
compensation program met these objectives and that the Company’s 2013 compensation program is
appropriate in light of the challenges facing the Company and its employees.
Compensation Committee Report
The Committee has reviewed and discussed with management the Compensation Discussion and
Analysis for 2012. Based on the review and the discussions, the Committee recommended to the Board
of Directors (and the Board approved), that the Compensation Discussion and Analysis be included in
Veeco’s Annual Report on Form 10-K and Proxy Statement.
This report is submitted by the Committee.
Richard A. D’Amore
Gordon Hunter
Roger D. McDaniel (Chairman)
Summary Compensation Table
The following table sets forth a summary of annual and long-term compensation awarded to, earned by,
or paid for the fiscal year ended December 31, 2012 to (a) the principal executive officer of Veeco,
(b) the principal financial officer of Veeco, and (c) each of the next three most highly compensated
executive officers (as defined in Rule 3b-7 under the Exchange Act) of Veeco serving at the end of the
year (the ‘‘NEOs’’).
Name and Principal
Position
Year
John R. Peeler . . . . . . . . . . 2012
CEO
2011
2010
David D. Glass . . . . . . . . . . 2012
EVP and CFO(6)
2011
2010
William J. Miller, Ph.D. . . . 2012
EVP, Process
2011
Equipment(7)
2010
Peter Collingwood . . . . . . . 2012
SVP, Worldwide Sales
2011
and Service(8)
2010
John P. Kiernan, . . . . . . . . . 2012
SVP, Finance, Corp.
2011
Controller and Treasurer 2010
Salary
($)
Bonus
($)(1)
Stock
Awards
($)(2)
Option
Awards
($)(3)
700,000
— 990,000 1,263,659
681,154
— 858,220 741,194
621,923
— 358,365 1,516,668
385,000
— 313,500 473,872
378,269
— 351,560 301,622
339,231
— 882,760 1,068,550
414,425
— 336,600 552,851
371,538
— 538,235 468,062
306,959 150,000 238,910 736,770
423,435
— 214,500 315,915
290,625
— 180,950 163,671
286,339
— 119,455 463,626
286,624
— 189,750 292,221
283,656 30,000 180,950 163,671
275,600
— 78,499 316,272
NonEquity
Incentive
All
Plan
Other
Compensation Compensation
($)(4)
($)(5)
355,135
559,773
2,000,461
136,727
216,670
765,478
147,382
172,163
842,353
128,433
152,401
362,234
72,707
115,684
442,132
120,881
117,944
126,283
16,452
76,284
279,431
16,140
11,640
11,640
294,374
467,220
478,124
16,452
41,760
121,760
Total ($)
3,429,676
2,958,285
4,623,700
1,325,552
1,324,406
3,335,450
1,467,398
1,561,639
2,286,633
1,376,658
1,254,867
1,709,777
857,755
815,721
1,234,263
(1) Reflects a special incentive bonus for Dr. Miller for the achievement of a specified MOCVD revenue
level in 2010, and a recognition award paid to Mr. Kiernan in 2011. All other bonuses were either
performance-based bonuses pursuant to the Company’s Management Bonus Plan, Management Profit
Sharing Plan or the Special Profit Sharing Plan, which are reflected under the column labeled
81
‘‘Non-Equity Incentive Plan Compensation,’’ or signing bonuses, which are reflected under the column
labeled ‘‘All Other Compensation,’’ in accordance with SEC rules.
(2) Reflects awards of restricted stock. In accordance with SEC rules, the amounts shown above reflect the
grant date fair value of the stock awards. The amounts shown relate to the following stock awards:
Grant Date
Fair Value
Grant Date
1/18/2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6/11/2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$32.58
$34.13
6/9/2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$51.70
12/1/2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5/25/2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$24.89
$33.00
Name
Number of
Shares
D. Glass
J. Peeler
D. Glass
W. Miller
P. Collingwood
J. Kiernan
J. Peeler
D. Glass
W. Miller
P. Collingwood
J. Kiernan
W. Miller
J. Peeler
D. Glass
W. Miller
P. Collingwood
J. Kiernan
25,000
10,500
2,000
7,000
3,500
2,300
16,600
6,800
6,800
3,500
3,500
7,500
30,000
9,500
10,200
6,500
5,750
(3) In accordance with SEC rules, the amounts shown above reflect the grant date fair value of the
option awards. Assumptions used in the calculation of these amounts are included in Note 8 to the
Company’s audited financial statements for the fiscal year ended December 31, 2012, included
elsewhere in this Annual Report on Form 10-K (the ‘‘Consolidated Financial Statements’’). The
amounts shown relate to the following option awards:
Grant Date
Fair Value
Grant Date
1/18/2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6/11/2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15.98
$17.97
6/9/2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$23.38
12/1/2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5/25/2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11.10
$15.80
82
Name
Number of
Shares
D. Glass
J. Peeler
D. Glass
W. Miller
P. Collingwood
J. Kiernan
J. Peeler
D. Glass
W. Miller
P. Collingwood
J. Kiernan
W. Miller
J. Peeler
D. Glass
W. Miller
P. Collingwood
J. Kiernan
50,000
84,400
15,000
41,000
25,800
17,600
31,700
12,900
12,900
7,000
7,000
15,000
80,000
30,000
35,000
20,000
18,500
(4) Reflects profit-sharing and cash bonuses under the Company’s Management Profit Sharing Plan,
Management Bonus Plan and Special Profit Sharing Plan and commissions. Profit-sharing, bonuses
and commissions listed for a particular year represent amounts earned with respect to such year
even though all or part of such amount may have been paid during the following year. These
amounts are comprised of the following:
Name
Year
J. Peeler . . . . . . . . . . .
D. Glass . . . . . . . . . . .
W. Miller . . . . . . . . . . .
P. Collingwood . . . . . . .
J. Kiernan . . . . . . . . . .
2012*
2011
2010
2012*
2011
2010
2012*
2011
2010
2012*
2011
2010
2012*
2011
2010
Profit
Sharing Plan
($)
Bonus
Plan
($)
Special Profit
Sharing Plan
($)
154,652
265,159
400,617
59,541
103,244
157,516
64,181
86,657
121,415
20,347
35,576
56,283
31,662
55,367
88,094
200,483
294,614
1,228,501
77,186
113,426
466,847
83,201
85,506
391,950
27,549
38,763
172,612
41,045
60,316
272,814
—
—
371,343
—
—
141,115
—
—
328,988
—
—
52,176
—
—
81,224
Commissions
($)
80,537**
78,061
81,162
Total NonEquity
Incentive Plan
Compensation
($)
355,135
559,773
2,000,461
136,727
216,670
765,478
147,382
172,163
842,353
128,433
152,400
362,234
72,707
115,684
442,132
*
Following the conclusion of the accounting review and the completion of the Company’s 2012
financial statements, it was determined that the 2012 MPSP awards paid for Q3 2012 were
overstated relative to adjusted financial results. Excess Q3 2012 MPSP payments were
subsequently deducted from awards otherwise payable under the 2012 Management Bonus
Plan.
**
A portion of this amount ($2,518) reflects commissions that may be earned by
Mr. Collingwood upon the recognition of revenue associated with orders booked in 2012.
(5) All Other Compensation for 2012 consists of car allowance, 401(k) matching contribution,
premiums for group term life insurance, relocation/housing allowance, and in the case of
Mr. Collingwood, car lease payments, an employer UK pension contribution, and Veeco-funded tax
payments.
Premium
Veeco401(k)
for Group Relocation / Funded
Total
Car
Matching
Term Life
Housing
Tax
Separation
Other
Allowance / Contribution Insurance Allowance Payments Payments Compensation
Lease ($)
($)
($)
($)
($)
($)
($)
Name
J. Peeler . . . . .
D. Glass . . . . .
W. Miller . . . .
P. Collingwood
J. Kiernan . . . .
*
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
18,000
8,400
8,400
17,029
8,400
7,500
7,500
7,500
3,190*
7,500
1,032
552
240
94,349
92,044
552
182,111
120,881
16,452
16,140
294,374
16,452
Amount reflects an employer UK pension contribution made on Mr. Collingwood’s behalf in
December of 2012.
83
(6) Mr. Glass joined Veeco as Executive Vice President and Chief Financial Officer on January 18,
2010.
(7) Dr. Miller was appointed as an executive officer of Veeco during 2010.
(8) Mr. Collingwood’s compensation for 2012 includes a six month salary increase of $20,000 per
month paid in conjunction with his temporary assignment to Veeco’s Shanghai office in 2012.
Mr. Collingwood subsequently returned to the United Kingdom and his compensation for the
month of December, 2012 was tendered in Great Britain Pounds (GBP). For purposes of these
tables, this compensation has been converted to United States Dollars (USD) at a rate of
1 GBP = 1.6139 USD, which was the average exchange rate for the month of December, 2012.
Grants of Plan-Based Awards
The following table sets forth certain information concerning grants to each NEO during 2012 of stock
options, shares of restricted stock and shares of restricted stock units made under the Company’s 2010
Stock Incentive Plan (the ‘‘2010 Plan’’). The option, restricted stock and restricted stock unit awards
are also included in the Stock Awards and Option Awards columns of the Summary Compensation
Table. The options granted under the 2010 Plan have a ten-year life. The options vest one third per
year on each of the first, second and third anniversaries of the date of grant. One third of the shares of
restricted stock vest on each of the second, third and fourth anniversaries of the date of grant. Holders
of restricted stock are entitled to dividends to the same extent as holders of unrestricted stock.
Name
All Other
All Other
Stock
Option
Exercise
Estimated Future Payouts
Awards:
Awards:
or Base Market Grant Date
Under Non-Equity Incentive
Number of Number of Price of Price on Fair Value
Plan Awards(1)
Shares of
Securities
Option
Date of
of Stock
Threshold Target Maximum Stock or
Underlying Awards
Grant and Option
Grant Date
($)
($)
($)
Units (#) Options (#) ($/Sh)(2) ($/Sh)(3) Awards ($)
J. Peeler . . . . . . 5/25/2012
5/25/2012
D. Glass . . . . . . 5/25/2012
5/25/2012
W. Miller . . . . . . 5/25/2012
5/25/2012
P. Collingwood . . 5/25/2012
5/25/2012
J. Kiernan . . . . . 5/25/2012
5/25/2012
30,000
80,000
33.00
33.31
30,000
33.00
33.31
35,000
33.00
33.31
20,000
33.00
33.31
18,500
33.00
33.31
9,500
10,200
6,500
5,750
990,000
1,263,659
313,500
473,872
336,600
552,851
214,500
315,915
189,750
292,221
(1) The Company made awards under its annual Management Bonus Plan for performance in 2012.
These bonuses, which were earned during 2012 and paid in the fourth quarter of 2013, are
reflected in the Summary Compensation Table under the Column entitled Non-Equity Incentive
Plan Compensation. Aside from these awards, the Company did not grant long-term cash or other
non-equity incentive plan awards in 2012.
(2) The exercise price reflects the closing price of Veeco common stock on the trading day
immediately preceding the grant date, as provided under the terms of the 2010 Plan.
(3) Reflects the closing market price of Veeco common stock on the date of grant for dates, if any, on
which the option exercise price was less than the closing price on the date of grant. Under the
2010 Plan, option exercise prices are based on the closing price on the trading day immediately
preceding the date of grant. The date-prior closing price was originally chosen when the 2010 Plan
was adopted to facilitate administration of the plan, approval and issuance of awards and reporting
of awards under applicable SEC rules.
84
Outstanding Equity Awards at Fiscal Year End
The following table provides certain information as of December 31, 2012, concerning unexercised
options and stock awards including those that had been granted but not yet vested as of such date for
each of the NEOs. The value of stock awards shown below is based upon the fair market value of the
Company’s common stock on December 31, 2012, which was $29.49 per share.
Option Awards
Name
J. Peeler . . . . . . . . . . . . . . .
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
83,334
58,334
100,000
150,000
56,266
10,566
D. Glass . . . . . . . . . . . . . . .
16,667
10,000
4,300
W. Miller . . . . . . . . . . . . . .
1,000
3,334
5,834
13,334
13,334
27,333
4,300
5,000
P. Collingwood . . . . . . . . . .
J. Kiernan . . . . . . . . . . . . .
6,667
6,668
6,667
13,334
17,200
2,333
4,584
4,584
5,867
2,333
Number of
Securities
Underlying
Unexercised
Options (#)(1)
Unexercisable
28,134
21,134
80,000
16,667
5,000
8,600
30,000
13,667
8,600
10,000
35,000
8,600
4,667
20,000
5,867
4,667
18,500
Option
Exercise
Price ($)
Option
Expiration
Date
20.74
17.48
8.82
12.36
34.13
51.70
33.00
32.58
34.13
51.70
33.00
18.11
16.37
17.48
8.82
12.36
34.13
51.70
24.89
33.00
12.38
8.82
12.02
12.36
34.13
51.70
33.00
8.82
12.36
34.13
51.70
33.00
6/30/2014
6/11/2015
5/17/2016
6/28/2016
6/10/2020
6/8/2021
5/24/2022
1/17/2017
6/10/2020
6/8/2021
5/24/2022
6/7/2014
11/8/2014
6/11/2015
5/17/2016
6/28/2016
6/10/2020
6/8/2021
11/30/2021
5/24/2022
10/5/2015
5/17/2016
6/17/2016
6/28/2016
6/10/2020
6/8/2021
5/24/2022
5/17/2016
6/28/2016
6/10/2020
6/8/2021
5/24/2022
Stock Awards
Market
Number of
Value of
Shares or
Shares or
Units of
Units of
Stock That
Stock That
Have Not
Have Not
Vested (#)(1)
Vested ($)
3,500
16,600
30,000
103,215
489,534
884,700
16,667
667
6,800
9,500
4,500
4,667
6,800
7,500
10,200
491,510
19,670
200,532
280,155
132,705
137,630
200,532
221,175
300,798
3,334
2,334
3,500
6,500
98,320
68,830
103,215
191,685
6,000
1,534
3,500
5,750
176,940
45,238
103,215
169,568
(1) The options which were not vested as of December 31, 2012 are to vest one third per year on each
of the first, second and third anniversaries of the date of grant. The shares of restricted stock
which were not vested as of December 31, 2012 are to vest as described herein. With respect to
restricted stock awards granted in 2008, vesting is to occur, and did in fact occur, on the fifth
anniversary of the date of grant, specifically on June 12, 2013 (except for the awards to
85
Mr. Collingwood, which vested in accordance with agreements entered in connection with his
initial hiring). With respect to restricted stock awards granted in 2010 (other than for
Messrs. Peeler and Glass), vesting is to occur one third per year on each of the second, third and
fourth anniversaries of the date of grant. The June 2010 restricted stock awards to Messrs. Peeler
and Glass were in the form of performance restricted stock units. The June 2011 and May 2012
restricted stock awards to all NEOs were in the form of performance restricted stock awards. If
the designated performance criteria is met, then one third of these units or awards, as the case
may be, will vest on the date on which the performance criteria is determined to have been met
and one third will vest on each of the first and second anniversaries of such date. The performance
criteria established for the 2010 and 2011 performance awards was met and vesting associated with
these awards has begun (although the vesting of the remaining third of the 2010 restricted stock
unit awards to Messrs. Peeler and Glass, scheduled to occur on August 2, 2013, was suspended as
a result of the accounting review). The grant dates for the awards shown above which were not
vested as of December 31, 2012 are as follows:
(the following table is part of footnote (1) to the Outstanding Equity Awards at Fiscal Year End
table above)
Name
J. Peeler . . . . . . . . . . .
Option Awards
Number of
Securities
Underlying
Unexercised
Option
Options (#)
Exercise
Unexercisable Price ($)
Stock Awards
Option
Grant
Date
28,134
21,134
80,000
16,667
5,000
8,600
30,000
13,667
8,600
10,000
35,000
34.13
51.70
33.00
32.58
34.13
51.70
33.00
34.13
51.70
24.89
33.00
6/11/2010
6/9/2011
5/25/2012
1/18/2010
6/11/2010
6/9/2011
5/25/2012
6/11/2010
6/9/2011
12/1/2011
5/25/2012
P. Collingwood . . . . . .
8,600
4,667
20,000
34.13
51.70
33.00
6/11/2010
6/9/2011
5/25/2012
J. Kiernan . . . . . . . . .
5,867
4,667
18,500
34.13
51.70
33.00
6/11/2010
6/9/2011
5/25/2012
D. Glass . . . . . . . . . . .
W. Miller . . . . . . . . . .
86
Number of
Shares
That Have
Not Vested (#)
Restricted
Stock
Grant Date
3,500
16,600
30,000
16,667
667
6,800
9,500
4,500
4,667
6,800
7,500
10,200
3,334
2,334
3,500
6,500
6,000
1,534
3,500
5,750
6/11/2010
6/9/2011
5/25/2012
1/18/2010
6/11/2010
6/9/2011
5/25/2012
6/12/2008
6/11/2010
6/9/2011
12/1/2011
5/25/2012
6/18/2009
6/11/2010
6/9/2011
5/25/2012
6/12/2008
6/11/2010
6/9/2011
5/25/2012
Options Exercises and Stock Vested During 2012
The following table sets forth certain information concerning the exercise of stock options and the
vesting of shares of restricted stock during the last fiscal year for each of the NEOs.
Option Awards
Number of
Shares Acquired
Value Realized
on Exercise (#)
on Exercise ($)
Name
J. Peeler . . . .
D. Glass . . . .
W. Miller . . . .
P. Collingwood
J. Kiernan . . .
.
.
.
.
.
.
.
.
.
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—
—
—
—
—
—
—
—
—
—
Stock Awards
Number of
Shares Acquired
Value Realized
on Vesting (#)(1)
on Vesting ($)
20,167
9,000
6,000
11,500
3,433
695,945
215,654
207,197
377,427
118,488
(1) Includes the following shares of stock surrendered to the Company and/or sold to satisfy tax
withholding obligations due upon the vesting of restricted stock:
Number of Shares Withheld and/or
Sold for Tax Withholding (#)
Name
J. Peeler . . . . .
D. Glass . . . . .
W. Miller . . . .
P. Collingwood
J. Kiernan . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
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.
.
.
.
.
.
.
7,905
3,433
2,165
3,983
1,239
Equity Compensation Plan Information
The Company maintains the Veeco 2010 Stock Incentive Plan (the ‘‘2010 Plan’’) to provide for equity
awards to employees, directors and consultants. In the past, the Company had maintained certain other
stock option plans, including plans not approved by the Company’s stockholders, all of which have
expired and/or been frozen and, as a result, no awards are available for future grant under such plans,
although past awards under these plans may still be outstanding. A brief description of the plans
approved by the Company’s stockholders follows.
Plans Approved by Securityholders
The 2010 Plan was approved by the Board of Directors and by the Company’s stockholders in May
2010. The 2010 Plan provides for the issuance of up 3,500,000 shares of Common Stock pursuant to
stock options, restricted stock, restricted stock units, stock appreciation rights, and dividend equivalent
rights (collectively, the ‘‘awards’’). As of December 31, 2012, 1,448,132 options were outstanding under
the 2010 Plan and there were 965,417 shares of Common Stock available for future issuance. The term
of any award granted under the 2010 Plan shall be the term stated in the award agreement, provided,
however, that the term of awards may not be longer than ten (10) years (or five (5) years in the case of
an incentive stock option granted to any participant who owns stock representing more than 10% of
the combined voting power of the Company or any parent or subsidiary of the Company), excluding
any period for which the participant has elected to defer the receipt of the shares or cash issuable
pursuant to the award and any deferral program the administrator of the 2010 Plan may establish in its
discretion.
87
The Veeco 2000 Stock Incentive Plan, as amended (the ‘‘2000 Plan’’), provided for the grant of up to
8,530,000 share-equivalent awards (either shares of restricted stock, restricted stock units or options to
purchase shares of Common Stock). Stock options granted pursuant to the 2000 Plan expire after
seven (7) years and generally become exercisable over a three-year period following the grant date. In
addition, the 2000 Plan provided for automatic annual grants of shares of restricted stock to each
non-employee Director of the Company having a fair market value in the amount determined by the
Compensation Committee from time to time. The 2000 Plan expired on April 3, 2010. As a result, no
further awards are available for grant under the 2000 Plan and this plan cannot be used for future
awards. As of December 31, 2012, 873,522 awards were outstanding under the 2000 Plan.
Plans Not Approved by Securityholders
In connection with the Company’s acquisition of Synos Technology, Inc. on October 1, 2013, the Board
of Directors granted equity awards to 52 Synos employees. Pursuant to Nasdaq Listing Rule 573(c)(4),
the equity awards were granted under the Company’s 2013 Inducement Stock Incentive Plan, which the
Board of Directors adopted to facilitate the granting of equity awards as an inducement to these
employees to commence employment with Veeco. Awards granted to Synos employees as a part of this
plan were comprised of (i) 124,500 stock options that will vest, subject to the recipient’s continued
service, over a three year period with one-third of each award vesting on each of the first three
anniversaries of the award; the stock option awards have a ten-year term, and (ii) 62,500 restricted
stock units were granted that will vest, subject to the recipient’s continued service, over a four year
period with one third of each award vesting on each anniversary of the award, beginning with the
second anniversary and vesting, and (iii) 25,200 restricted stock units were granted that will vest, subject
to the recipient’s continued service, on the second anniversary of the award. There are no awards
available for future grant under the 2013 Inducement Stock Incentive Plan.
Potential Payments Upon Termination or Change-in-Control
The Company has entered into an employment agreement or letter agreement with each of the NEOs.
These agreements provide for the payment of severance and certain other benefits to the executive in
the event (i) the executive’s employment is terminated by Veeco without ‘‘cause’’ (defined as specified
serious misconduct), (ii) the executive resigns for ‘‘good reason’’ or (iii) in the case of Mr. Peeler, in
the event of death or disability. ‘‘Good reason’’ is defined in the employment and letter agreements as
(a) a salary reduction, other than pursuant to a management-wide salary reduction program, (b) in the
case of Messrs. Peeler, an involuntary relocation of the executive’s primary place of work by more than
50 miles from its then current location, (c) in the case of Mr. Peeler, an involuntary diminution in
position, title, responsibilities, authority or reporting responsibilities; (d) in the case of Messrs. Peeler
and Glass, a significant reduction in total benefits available (other than a reduction affecting employees
generally); and (e) in the case of Mr. Peeler, involuntarily ceasing to be a member of the Board. The
nature and extent of the benefits payable vary from executive to executive and, for Mr. Glass, vary
depending on whether the termination occurs in connection with or following a ‘‘change of control.’’
The specific benefits payable to each individual under these agreements are described below. Payment
of these severance and other benefits is conditioned on the executive’s release of claims against the
Company and on non-competition and non-solicitation provisions applicable during the period in which
executive is entitled to severance payments, as described below. If the termination is for ‘‘cause’’ or by
the executive without ‘‘good reason,’’ the severance obligations do not apply. These agreements contain
provisions intended to ensure that payments under the agreement comply with Section 409A of the
Code. Such provisions may have the effect of delaying or accelerating certain payments under the
agreements. The description of the employment agreements and letter agreements contained herein is a
summary only. Reference is made to the full text of these agreements which have been filed previously
with the SEC.
88
Peeler Agreement
The Company has entered into an employment agreement with Mr. Peeler dated July 1, 2007 and
amendments thereto dated June 12, 2008, December 31, 2008, June 11, 2010 and April 25, 2012. Under
the agreement, in the event of a specified termination as described above, Mr. Peeler will be entitled to
severance in an amount equal to 36 months of base salary and he will be entitled to a payment equal
to his target bonus for the year of termination, pro-rated for the period of his service during such year.
In addition, upon any such termination, (i) Mr. Peeler will have 36 months (or until the end of the
original term of the options, if earlier) to exercise options to purchase common stock of Veeco which
are or become vested and are held by Mr. Peeler at the time of such termination, (ii) the vesting of any
options which are held by the executive at the time of such termination will be accelerated, and
(iii) the vesting of any shares of restricted stock held by Mr. Peeler at the time of such termination will
be accelerated and restrictions with regard thereto shall lapse. In addition, if Mr. Peeler elects to
continue healthcare coverage under COBRA, then his contributions will be at the same Companysubsidized rates which Mr. Peeler would have paid had his employment not been terminated.
Glass Agreement
The Company has entered into a letter agreement with Mr. Glass dated December 17, 2009. Under the
agreement, in the event of a specified termination as described above, Mr. Glass will be entitled to
severance in an amount equal to 18 months of base salary. In addition, upon any such termination,
(i) Mr. Glass will have 12 months (or until the end of the original term of the options, if earlier) to
exercise options to purchase common stock of Veeco which were granted after the date of the
employment agreement and which are or become vested and are held by Mr. Glass at the time of such
termination, and (ii) if such termination occurs within 12 months following a change of control, the
vesting of any such options which are held by the executive at the time of such termination will be
accelerated. In addition, if Mr. Glass elects to continue healthcare coverage under COBRA, then his
contributions during the period in which he is receiving severance under the agreement will be at the
same Company-subsidized rates which Mr. Glass would have paid had his employment not been
terminated.
Miller Agreement
The Company has entered into a letter agreement with Dr. Miller dated January 30, 2012. Under the
agreement, in the event of a specified termination as described above, Dr. Miller will be entitled to
severance in an amount equal to 12 months of base salary. In addition, upon any such termination,
(i) Dr. Miller will have 12 months (or until the end of the original term of the options, if earlier) to
exercise vested options to purchase common stock of Veeco which are held by Dr. Miller at the time of
such termination and (ii) if Dr. Miller elects to continue healthcare coverage under COBRA, then his
contributions during the period in which he is receiving severance under the agreement will be at the
same Company-subsidized rates which Dr. Miller would have paid had his employment not been
terminated.
Collingwood Agreement
The Company entered into a letter agreement with Mr. Collingwood effective January 1, 2010, in
connection with his temporary assignment at the Company’s headquarters office in Plainview, New
York. Under the agreement, in the event Mr. Collingwood’s employment is terminated by the Company
without cause, Mr. Collingwood will be entitled to severance in an amount equal to 12 months of base
salary. In addition, both the Company and Mr. Collingwood are required to give the other three
months’ notice should either party wish to terminate Mr. Collingwood’s employment, except in cases of
gross misconduct or other fundamental breach of his obligations by Mr. Collingwood’s obligations, in
which case the Company may terminate Mr. Collingwood’s employment with immediate effect.
89
Kiernan Agreement
The Company has entered into a letter agreement with Mr. Kiernan dated January 21, 2004, and
amendments thereto dated June 9, 2006 and December 29, 2008. Under the agreement, in the event of
a specified termination as described above, Mr. Kiernan will be entitled to severance in an amount
equal to 18 months of base salary. In addition, upon any such termination, Mr. Kiernan will have
12 months to exercise stock options held by him at such time (or until the end of the original term of
the options, if earlier) and, if such termination occurs within 12 months of a change of control, the
vesting of any options which are held by Mr. Kiernan at the time of such termination will be
accelerated. In addition, upon such termination, the vesting of any shares of restricted stock awarded to
Mr. Kiernan after June 9, 2006 and which are held by Mr. Kiernan at the time of such termination will
be accelerated and all restrictions with regard thereto shall lapse upon such termination. Furthermore,
upon such termination, Mr. Kiernan will be entitled to receive a pro-rated portion of any outstanding
long-term cash incentive awards. However, the calculation of the pro-rated amount varies depending
upon whether such termination occurs within 12 months of a change in control or such other period of
time.
Change in Control Policy
Veeco has adopted a Senior Executive Change in Control Policy (the ‘‘Policy’’) dated September 12,
2008 and amended December 23, 2008. The Policy provides certain severance and other benefits to
designated senior executives in the event of a change in control of Veeco. The Policy was implemented
to ensure that the executives to whom the policy applies remain available to discharge their duties in
respect of a proposed or actual transaction involving a change in control that, if consummated, might
result in a loss of such executive’s position with the Company or the surviving entity. The policy was
not adopted with any particular change in control in mind. The policy applies to designated senior
executives of Veeco (‘‘Eligible Employees’’), including Messrs. Glass, Miller, Collingwood and Kiernan.
The policy does not apply to Mr. Peeler. Benefits under the Senior Executive Change in Control Policy
are intended to supplement, but not duplicate, benefits to which the covered executive may be entitled
under the employment and letter agreements described above. The following description of the Senior
Executive Change in Control Policy contained above is a summary only. Reference is made to the full
text of the policy which has been filed previously with the SEC. The principal terms of the policy are:
(a) Upon the consummation of a Change in Control (as defined in the policy), the vesting of all
equity awards held by the Eligible Employee shall be accelerated and any outstanding stock
options then held by the employee shall remain exercisable until the earlier of (x) 12 months
following the date of termination of the employee’s employment and (y) the expiration of the
original term of such options.
(b) If an Eligible Employee’s employment shall be terminated by the Company without Cause (as
defined in the policy), or by the Eligible Employee for Good Reason (as defined in the
policy), during the period commencing 3 months prior to, and ending 18 months following, a
Change in Control, and subject to the Eligible Employee’s execution of a separation and
release agreement in a form reasonably satisfactory to the Company:
(i) The Company shall pay to the Eligible Employee in a lump sum an amount equal to the
sum of (A) his or her then current annual base salary and (B) the target bonus payable to the
Eligible Employee pursuant to the Company’s performance-based compensation bonus plan
with respect to the fiscal year ending immediately prior to the date of termination, multiplied
by 1.5;
(ii) The Company shall continue to provide the Eligible Employee with all health and welfare
benefits which he or she was participating in or receiving as of the date of termination until
the 18-month anniversary of the date of termination; and
90
(iii) The Company shall pay to the Eligible Employee a pro-rated amount of the Eligible
Employee’s bonus for the fiscal year in which the date of termination occurs.
Payment of the benefits described above is conditioned on the executive’s release of claims against the
Company and on non-competition and non-solicitation provisions applicable during the 18-month
period following termination of executive’s employment.
Potential Payments Upon Termination or Change-in-Control
The following table shows the estimated, incremental amounts that would have been payable to the
NEOs upon the occurrence of the indicated event, had the applicable event occurred on December 31,
2012. These amounts would be incremental to the compensation and benefit entitlements described
above in this Proxy Statement that are not contingent upon a termination or change-in-control. The
amounts attributable to the accelerated vesting of stock options and restricted shares are based upon
the fair market value of the Company’s common stock on December 31, 2012, which was $29.49 per
share. The actual compensation and benefits the executive would receive at any subsequent date would
likely vary from the amounts set forth below as a result of certain factors, such as a change in the price
of the Company’s common stock and any additional benefits the officer may have accrued as of that
time under applicable benefit or compensation plans.
Name
J. Peeler . . . . . .
D. Glass . . . . . .
W. Miller . . . . . .
P. Collingwood(6)
Event
Termination without Cause
or resignation for Good
Reason or upon Death or
Disability(4)
Termination without Cause
or resignation for Good
Reason or upon Death or
Disability
Termination without Cause
or resignation for Good
Reason following a Change
of Control(5)
Termination without Cause
or resignation for Good
Reason
Termination without Cause
or resignation for Good
Reason following a Change
of Control(5)
Termination without Cause
or resignation for Good
Reason
Termination without Cause
or resignation for Good
Reason following a Change
of Control(5)
Salary &
Other
Continuing
Payments
($)(1)
Stock Options
Extension of
Accelerated
PostVesting of
Termination
Stock
Exercise
Options
Period
($)(2)
($)(3)
Accelerated
Vesting of
Stock
Awards ($)
Total ($)
2,505,944
—
1,805,632
1,477,449
5,789,017
604,350
—
—
—
604,350
1,143,351
—
—
991,867
2,135,217
441,852
—
—
—
441,852
1,230,355
46,000
76,432
992,840
2,345,627
320,250
—
—
—
320,250
700,497
—
49,154
462,049
1,211,701
91
Name
Event
J. Kiernan . . . . .
Termination without Cause
or resignation for Good
Reason
Termination without Cause
or resignation for Good
Reason following a Change
of Control(5)
Salary &
Other
Continuing
Payments
($)(1)
Stock Options
Extension of
Accelerated
PostVesting of
Termination
Stock
Exercise
Options
Period
($)(2)
($)(3)
Accelerated
Vesting of
Stock
Awards ($)
Total ($)
457,908
—
20,277
494,960
973,145
744,532
—
20,277
494,960
1,259,769
(1) Reflects salary continuation benefits and, where provided under the applicable employment agreement or
Change in Control Policy, pro-rated bonus and COBRA subsidy. Pro-rated bonus amounts assume 6 months
of bonus at 100% of target performance.
(2) Reflects the spread, or in-the-money value, as of December 31, 2012, of options to purchase Veeco common
stock which would vest upon the specified event where provided under the applicable employment agreement
or Change in Control Policy. Does not include the value of out-of-the-money options or options which vested
prior to the specified event. As of December 31, 2012, the closing price of Veeco common stock was $29.49
per share. Please refer to the Outstanding Equity Awards At Fiscal Year End table above for a listing of
unvested stock options held by the NEO as of December 31, 2012.
(3) Reflects the increase in value of the spread, or in-the-money value, as of the end of the extended exercise
period provided under the applicable agreement, as compared to the value of the spread as of December 31,
2012, of options to purchase Veeco common stock which were vested as of, or which would vest upon the
occurrence of, the specified event, where provided under the applicable employment agreement or Change in
Control Policy, and assuming that the price of Veeco common stock appreciates at a rate of 5% per annum
from the closing price on December 31, 2012, which was $29.49 per share. Does not include the value of
out-of-the-money options. Please refer to the Outstanding Equity Awards At Fiscal Year End table above for
a listing of vested and unvested stock options held by the NEO as of December 31, 2012.
(4) The agreement for Mr. Peeler does not distinguish between Change of Control and non-Change of Control
scenarios.
(5) As used in the Senior Executive Change in Control Policy, ‘‘Change in Control’’ is defined to mean the case
where:
(i) any person or group acquires more than 50% of the total fair market value or total voting power of the
stock of the Company;
(ii) any person or group acquires (or has acquired during the 12-month period ending on the date of the
most recent acquisition by such person or group) ownership of stock of the Company possessing 30% or more
of the total voting power of the stock of the Company;
(iii) a majority of the members of Veeco’s Board is replaced during any 12-month period by Directors whose
appointment or election is not endorsed by a majority of the members of Veeco’s Board prior to the date of
the appointment or election; or
(iv) any person or group acquires (or has acquired during the 12-month period ending on the date of the
most recent acquisition by such person or group) substantially all of the assets of the Company immediately
prior to such acquisition or acquisitions. However, no Change in Control shall be deemed to occur under this
subsection (iv) as a result of a transfer to:
(A) A shareholder of the Company (immediately before the asset transfer) in exchange for or with
respect to its stock;
92
(B) An entity, 50% or more of the total value or voting power of which is owned, directly or indirectly,
by the Company;
(C) A person or group that owns, directly or indirectly, 50% or more of the total value or voting power
of all the outstanding stock of the Company; or
(D) An entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by
a person described in clause (iii) above.
(6) Salary for Mr. Collingwood, who is based in the United Kingdom, is denominated in Great Britain Pounds
(GBP). Amounts reflected above have been converted to United States Dollars (USD) at a rate of
1 GBP = 1.6259 USD, which was the exchange rate in effect on December 31, 2012.
93
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The following table sets forth certain information regarding the beneficial ownership of Common Stock
as of October 22, 2013 (unless otherwise specified below) by (i) each person known by Veeco to own
beneficially more than five percent of the outstanding shares of Common Stock, (ii) each director of
Veeco, (iii) each NEO, and (iv) all executive officers and directors of Veeco as a group. Unless
otherwise indicated, Veeco believes that each of the persons or entities named in the table exercises
sole voting and investment power over the shares of Common Stock that each of them beneficially
owns, subject to community property laws where applicable.
Shares of Common Stock
Beneficially Owned(1)
Shares
Options
Total
Percentage of
Total Shares
Outstanding(1)
5% or Greater Stockholders:
BlackRock, Inc.(2) . . . . . . . . . . .
Royce & Associates, LLC(3) . . .
The Vanguard Group(4) . . . . . .
AllianceBernstein LP(5) . . . . . . .
Fisher Investments(6) . . . . . . . .
ClearBridge Investments, LLC(7)
.
.
.
.
.
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.
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.
.
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.
6,762,360
3,722,612
2,364,235
2,336,157
2,202,762
2,047,866
—
—
—
—
—
—
6,762,360
3,722,612
2,364,235
2,336,157
2,202,762
2,047,866
17.2%
9.5%
6.0%
6.0%
5.6%
5.2%
Directors:
Edward H. Braun . .
Richard A. D’Amore
Gordon Hunter . . . .
Keith D. Jackson . . .
Roger McDaniel . . .
John R. Peeler . . . .
Peter J. Simone . . . .
.
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.
.
1,666
74,087
7,746
3,946
19,151
161,609
12,386
50,000
—
—
—
—
523,867
—
51,666
74,087
7,746
3,946
19,151
685,476
12,386
*
*
*
*
*
1.7%
*
...............
...............
...............
...............
...............
Officers as a Group
...............
.
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.
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.
161,609
34,896
37,628
16,559
19,730
523,867
66,934
103,102
70,468
31,734
685,476
101,830
140,730
87,027
51,464
1.7%
*
*
*
*
.....
389,404
846,105
1,235,509
3.1%
.
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.
Named Executive Officers:
John R. Peeler . . . . . . . . .
David D. Glass . . . . . . . . .
William J. Miller, Ph.D. . .
Peter Collingwood . . . . . . .
John Kiernan . . . . . . . . . .
All Directors and Executive
(11 persons) . . . . . . . . .
*
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Less than 1%.
(1) A person is deemed to be the beneficial owner of securities owned or which can be acquired by
such person within 60 days of the measurement date upon the exercise of stock options. Shares
owned include awards of restricted stock from the Company, whether or not vested. Each person’s
percentage ownership is determined by assuming that stock options beneficially owned by such
person (but not those owned by any other person) have been exercised.
(2) Share ownership information is based on information contained in a Schedule 13G/A filed with the
SEC on January 11, 2013. The address of this holder is 40 East 52nd Street, New York, New
York 10022.
94
(3) Share ownership information is based on information contained in a Schedule 13G/A filed with the
SEC on January 24, 2013. The address of this holder is 745 Fifth Avenue, New York, New
York 10151.
(4) Share ownership information is based on information contained in a Schedule 13G/A filed with the
SEC on February 11, 2013. The address of this holder is 100 Vanguard Boulevard, Malvern,
Pennsylvania 19355.
(5) Share ownership information is based on information contained in a Schedule 13G filed with the
SEC on February 13, 2013. The address of this holder is 1345 Avenue of the Americas, New York,
New York 10105.
(6) Share ownership information is based on information contained in a Schedule 13G filed with the
SEC on February 6, 2013. The address of this holder is 13100 Skyline Boulevard, Woodside,
California 94062.
(7) Share ownership information is based on information contained in a Schedule 13G filed with the
SEC on February 14, 2013. The address of this holder is 620 8th Avenue, New York, New
York 10018.
Item 13.
Certain Relationships, Related Transactions and Director Independence
The Company’s Audit Committee charter provides that the Audit Committee, or one or more of its
members, has the authority and responsibility to review and, if appropriate, approve all proposed
related party transactions. For purposes of the Audit Committee’s review, a ‘‘related party transaction’’
is a transaction, arrangement or relationship between the Company and any Related Party where the
aggregate amount will or may be expected to exceed $120,000 and any Related Party had, has or will
have a direct or indirect material interest (as such terms are used in Item 404 of Regulation S-K under
the Exchange Act). A ‘‘Related Party’’ is: (i) any director, nominee for director or executive officer (as
such term is used in Section 16 of the Exchange Act) of the Company; (ii) any immediate family
member of a director, nominee for director or executive officer of the Company; (iii) any person
(including any ‘‘group’’ as such term is used in Section 13(d) of the Exchange Act) who is known to the
Company as a beneficial owner of more than five percent of the Company’s voting common stock (a
‘‘significant stockholder’’); and (iv) any immediate family member of a significant stockholder.
When reviewing a related party transaction, the Audit Committee will take into consideration all of the
relevant facts and circumstances available to it, including (if applicable), but not limited to:
• the material terms and conditions of the transaction or transactions;
• the Related Party’s relationship to the Company;
• the Related Party’s interest in the transaction, including their position or relationship with, or
ownership of, any entity that is a party to or has an interest in the transaction;
• the approximate dollar value of the transaction;
• the availability from other sources of comparable products or services; and
• an assessment of whether the transaction is on terms that are comparable to the terms available to
the Company from an unrelated third party.
During 2012, the Company has not been a participant in any related party transactions.
Independence of the Board of Directors
Veeco’s Corporate Governance Guidelines provide that at least two-thirds of the Board of Directors
must be independent in accordance with the Nasdaq listing standards. In addition, service on other
95
boards must be consistent with Veeco’s conflict of interest policy and the nature and time involved in
such service is reviewed when evaluating suitability of individual directors for election.
Independence of Current Directors
Veeco’s Board of Directors has determined that all of the directors are ‘‘independent’’ within the
meaning of the applicable Nasdaq listing standards, except Mr. Peeler, the Company’s Chief Executive
Officer, and Mr. Braun, the Company’s Chairman and former Chief Executive Officer.
Independence of Committee Member
All members of Veeco’s Audit, Compensation and Governance Committees are required to be and are
independent in accordance with Nasdaq listing standards.
Compensation Committee Interlocks and Insider Participation. During 2012, none of Veeco’s executive
officers served on the board of directors of any entity whose executive officers served on Veeco’s
Compensation Committee. No current or past executive officer of Veeco serves on our Compensation
Committee. The members of our Compensation Committee are Messrs. D’Amore, Hunter and
McDaniel.
Item 14.
Principal Accounting Fees and Services
Our independent registered public accounting firm, Ernst & Young LLP, the member firms of
Ernst & Young LLP and their respective affiliates (collectively ‘‘E&Y’’), rendered professional services
for the Company and its subsidiaries during the fiscal years ended December 31, 2012, 2011 and 2010.
E&Y has advised us that it has no direct or indirect financial interests in us or any of our subsidiaries
and that it has had, during the last five years, no connection with us or any of our subsidiaries other
than as our independent registered public accounting firm and certain other activities as described
below.
The fees for December 31, 2012 and 2011 that have been billed through the date of this Report are
presented for the fiscal year in which they are applicable. Also included in the fees for the year ended
December 31, 2012 are services related to the accounting for the results of revenue recognition
evaluations, accounting review for the years ended December 31, 2012, 2011, 2010 and 2009 as well as
efforts to become current in periodic reporting obligations under the federal securities laws. The
following table sets forth the aggregate amount of fees billed for professional services rendered by
E&Y to the Company and its subsidiaries in these years.
(in thousands)
For the year ended
December 31,
2012
2011
Audit fees(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit-related fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax fees(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,675
—
265
$1,180
174
803
Total fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,940
$2,157
(1) The aggregate fees billed for professional services rendered by E&Y for the audits of
annual financial statements and internal control over financial reporting, review of
quarterly financial statements, services that are normally provided by E&Y in connection
with statutory and regulatory filings or engagements. Also included in 2012 are fees billed
for services related to the accounting for the results of revenue recognition evaluations,
accounting review and efforts to become current in periodic reporting obligations under
the federal securities laws.
96
(2) The aggregate fees billed for audit-related services rendered by E&Y, including
acquisition due diligence.
(3) The aggregate fees billed for professional services rendered by E&Y for worldwide tax
compliance, tax advice and tax planning.
The Company’s Audit Committee has determined that the provision of services described in the
foregoing table to the Company and its subsidiaries is compatible with maintaining the independence of
E&Y. All of the services described in the foregoing table with respect to the Company and its
subsidiaries were approved by the Company’s Audit Committee in conformity with its Pre-Approval
Policy (as described below).
Pre-Approval Policy for Audit, Audit Related and Non-Audit Services
Consistent with applicable securities laws regarding auditor independence and pursuant to the Audit
Committee charter, the Audit Committee has the direct and sole responsibility for the appointment,
evaluation, compensation, direction and termination of any independent registered public accounting
firm engaged for the purpose of performing any services to the Company and its subsidiaries. For that
purpose, the Audit Committee adopted a policy to pre-approve all audit, audit-related, tax and
permissible non-audit services to be provided by the independent registered public accounting firm (or
the Pre-Approval Policy).
Pursuant to the Pre-Approval Policy, the Audit Committee is responsible for pre-approving all audit,
audit-related, tax and non-audit services to be provided by an independent registered public accounting
firm, including any proposed modification or change in scope or extent of any such services previously
approved by the Audit Committee. In furtherance thereof, annually, prior to the commencement of any
services, the Audit Committee reviews the services expected to be rendered in the coming year, the
specific engagement terms, the related fees and the conditions of the engagement of the independent
registered public accounting firm. Any services to be provided must be approved by the Audit
Committee in advance. Quarterly, the Audit Committee receives status reports detailing services
provided and expected to be provided by the independent registered public accounting firm. At such
time, or more expeditiously if the need arises during the fiscal year, the Audit Committee reviews and,
if appropriate, approves any services that have not been previously pre-approved and any proposed
additions or modifications to any previously approved services or lines of service to be provided,
together with any changes in fees. With respect to all permissible tax or internal control-related
services, the Audit Committee shall specifically consider the impact of the provision of such services on
the auditor’s independence.
To ensure prompt handling of unforeseeable or unexpected matters that arise between Audit
Committee meetings, the Audit Committee may delegate pre-approval authority to its chairperson
and/or other members of such committee as the chairperson may from time to time designate provided
that any such interim pre-approvals must be reviewed by the full Audit Committee at its next meeting
and, in accordance with the Audit Committee charter, such delegation is not otherwise inconsistent
with law or applicable rules of the SEC and the NASDAQ Stock Market. The Audit Committee cannot
delegate its pre-approval authority to members of management.
97
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(a) The Registrant’s financial statements together with a separate table of contents are annexed
hereto. The financial statement schedule is listed in the separate table of contents annexed
hereto.
(b) Exhibits
Unless otherwise indicated, each of the following exhibits has been previously filed with the Securities
and Exchange Commission by the Company under File No. 0-16244.
Number
Exhibit
Incorporated by Reference to the Following Documents
2.1
Stock Purchase Agreement dated August 15,
2010 among Veeco Instruments Inc.
(Veeco), Veeco Metrology Inc. and Bruker
Corporation
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2010,
Exhibit 2.1
3.1
Amended and Restated Certificate of
Incorporation of Veeco dated December 1,
1994, as amended June 2, 1997 and July 25,
1997.
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, Exhibit 3.1
3.2
Amendment to Certificate of Incorporation
of Veeco dated May 29, 1998.
Annual Report on Form 10-K for the year
ended December 31, 2000, Exhibit 3.2
3.3
Amendment to Certificate of Incorporation
of Veeco dated May 5, 2000.
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000, Exhibit 3.1
3.4
Certificate of Designation, Preferences, and
Rights of Series A Junior Participating
Preferred Stock of Veeco.
Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001, Exhibit 3.1
3.5
Amendment to Certificate of Incorporation
of Veeco dated May 16, 2002
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2009,
Exhibit 3.1
3.6
Amendment to Certificate of Incorporation
of Veeco dated May 14, 2010
Annual Report on Form 10-K for the year
ended December 31, 2010, Exhibit 3.8
3.7
Fourth Amended and Restated Bylaws of
Veeco, effective October 23, 2008
Current Report on Form 8-K filed
October 27, 2008, Exhibit 3.1
3.8
Amendment No. 1 to the Fourth Amended
and Restated Bylaws of Veeco effective
May 20, 2010
Current Report on Form 8-K, filed May 26,
2010, Exhibit 3.1
3.9
Amendment No. 2 to the Fourth Amended
and Restated Bylaws of Veeco effective
October 20, 2011
Current Report on Form 8-K, filed
October 24, 2011, Exhibit 3.1
10.1
Loan Agreement dated as of December 15,
1999 between Applied Epi, Inc. and Jackson
National Life Insurance Company.
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001,
Exhibit 10.2
98
Number
Exhibit
Incorporated by Reference to the Following Documents
10.2
Amendment to Loan Documents effective as
of September 17, 2001 between Applied
Epi, Inc. and Jackson National Life
Insurance Company (executed in June
2002).
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002, Exhibit 10.2
10.3
Promissory Note dated as of December 15,
1999 issued by Applied Epi, Inc. to Jackson
National Life Insurance Company.
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001,
Exhibit 10.3
10.4*
Form of Indemnification Agreement entered
into between Veeco and each of its directors
and executive officers.
Current Report on Form 8-K filed on
October 23, 2006, Exhibit 10.1
10.5*
Veeco Amended and Restated 2000 Stock
Incentive Plan, effective July 20, 2006.
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006, Exhibit 10.4
10.6*
Amendment No. 1 effective April 18, 2007
(ratified by the Board August 7, 2007) to
Veeco Amended and Restated 2000 Stock
Incentive Plan.
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2007, Exhibit 10.1
10.7*
Amendment No. 2 dated January 22, 2009
to Veeco Amended and Restated 2000 Stock
Incentive Plan.
Annual Report on Form 10-K for the year
ended December 31, 2008, Exhibit 10.41
10.8*
Form of Restricted Stock Agreement
pursuant to the Veeco 2000 Stock Incentive
Plan, effective November 2005
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2005,
Exhibit 10.3
10.9*
Form of Notice of Restricted Stock Award
and related terms and conditions pursuant
to the Veeco 2000 Stock Incentive Plan,
effective June 2006
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2006,
Exhibit 10.3
10.10*
Veeco 2010 Stock Incentive Plan, effective
May 14, 2010
Registration Statement on Form S-8 (File
Number 333-166852) filed May 14, 2010,
Exhibit 10.1
10.11*
Form of 2010 Stock Incentive Plan Stock
Option Agreement (2012 rev.)
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2012, Exhibit 10.2
10.12*
Form of 2010 Stock Incentive Plan
Restricted Stock Agreement (2012 rev.)
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2012, Exhibit 10.3
10.13*
Form of 2010 Stock Incentive Plan
Restricted Stock Unit Agreement (2012 rev.)
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2012, Exhibit 10.4
10.14*
Form of 2010 Stock Incentive Plan
Restricted Stock Agreement (Non-Employee
Director) (2011 rev.)
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2012, Exhibit 10.5
10.15*
Form of 2010 Stock Incentive Plan
Restricted Stock Agreement (Performance
Based) (2012 rev.)
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2012, Exhibit 10.6
99
Number
Exhibit
Incorporated by Reference to the Following Documents
10.16*
Veeco 2013 Inducement Stock Incentive
Plan, effective September 26, 2013
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2012,
Exhibit 10.1
10.17*
Form of 2013 Inducement Stock Incentive
Plan Stock Option Agreement
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2012,
Exhibit 10.2
10.18*
Form of 2013 Inducement Stock Incentive
Plan Restricted Stock Unit Agreement
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2012,
Exhibit 10.3
10.19*
Veeco Performance-Based Restricted Stock
2010
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2010, Exhibit 10.2
10.20*
Veeco 2010 Management Bonus Plan dated
January 22, 2010
Quarterly Report on Form 10-Q for the
quarter ended March 31, 2010, Exhibit 10.2
10.21*
Veeco 2010 Special Profit Sharing Plan
dated February 15, 2010
Quarterly Report on Form 10-Q for the
quarter ended March 31, 2010, Exhibit 10.3
10.22*
Senior Executive Change in Control Policy
effective as of September 12, 2008
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2008,
Exhibit 10.3
10.23*
Amendment No. 1 dated December 23, 2008
(effective September 12, 2008) to Veeco
Senior Executive Change in Control Policy
Annual Report on Form 10-K for the year
ended December 31, 2008, Exhibit 10.37
10.24*
Employment Agreement effective as of
July 1, 2007 between Veeco and John R.
Peeler
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2007, Exhibit 10.3
10.25*
Amendment effective December 31, 2008 to
Employment Agreement between Veeco and
John R. Peeler
Annual Report on Form 10-K for the year
ended December 31, 2008, Exhibit 10.38
10.26*
Second Amendment effective June 11, 2010
to Employment Agreement between Veeco
and John R. Peeler
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2010, Exhibit 10.1
10.27*
Third Amendment effective April 27, 2012
to Employment Agreement between Veeco
and John R. Peeler
Quarterly Report on Form 10-Q for the
quarter ended March 31, 2012, Exhibit 10.2
10.28*
Employment Agreement dated
December 17, 2009 (effective January 18,
2010) between Veeco and David D. Glass
Quarterly Report on Form 10-Q for the
quarter ended March 31, 2010, Exhibit 10.1
10.29*
Letter Agreement dated January 21, 2004
between Veeco and John P. Kiernan.
Annual Report on Form 10-K for the year
ended December 31, 2003, Exhibit 10.38
10.30*
Amendment effective June 9, 2006 to Letter
Agreement between Veeco and John P.
Kiernan
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006, Exhibit 10.3
100
Number
Exhibit
Incorporated by Reference to the Following Documents
10.31*
Amendment effective December 31, 2008 to
Letter Agreement between Veeco and
John P. Kiernan
Annual Report on Form 10-K for the year
ended December 31, 2008, Exhibit 10.40
10.32*
Letter agreement effective as of June 19,
2009 between Veeco and John P. Kiernan
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2009, Exhibit 10.2
10.33*
Letter agreement effective as of January 4,
2010 between Veeco and Peter Collingwood
Quarterly Report on Form 10-Q for the
quarter ended March 31, 2012, Exhibit 10.1
10.34*
Veeco 2011 Management Bonus Plan, dated
January 26, 2011
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2011, Exhibit 10.1
10.35*
Service Agreement effective January 1, 2012
between Veeco and Edward H. Braun
Annual Report on Form 10-K for the year
ended December 31, 2011, Exhibit 10.29
10.36*
Letter Agreement dated January 30, 2012
between Veeco and Dr. William J. Miller
Annual Report on Form 10-K for the year
ended December 31, 2011, Exhibit 10.30
21.1
Subsidiaries of the Registrant.
Filed herewith
23.1
Consent of Ernst & Young LLP.
Filed herewith
31.1
Certification of Chief Executive Officer
pursuant to Rule 13a-14(a) or
Rule 15d-14(a) of the Securities and
Exchange Act of 1934.
Filed herewith
31.2
Certification of Chief Financial Officer
pursuant to Rule 13a-14(a) or
Rule 15d-14(a) of the Securities and
Exchange Act of 1934.
Filed herewith
32.1
Certification of Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002
Filed herewith
32.2
Certification of Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002
Filed herewith
101.INS
XBRL Instance
**
101.XSD
XBRL Schema
**
101.PRE
XBRL Presentation
**
101.CAL
XBRL Calculation
**
101.DEF
XBRL Definition
**
101.LAB
XBRL Label
**
*
Indicates a management contract or compensatory plan or arrangement, as required by
Item 15(a) (3) of Form 10-K.
**
Filed herewith electronically
101
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on November 3, 2013.
Veeco Instruments Inc.
By:
/s/ JOHN R. PEELER
John R. Peeler
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities indicated, on
November 3, 2013.
Signature
/s/ JOHN R. PEELER
John R. Peeler
/s/ DAVID D. GLASS
David D. Glass
/s/ JOHN P. KIERNAN
John P. Kiernan
/s/ EDWARD H. BRAUN
Edward H. Braun
/s/ RICHARD A. D’AMORE
Richard A. D’Amore
/s/ GORDON HUNTER
Gordon Hunter
/s/ KEITH D. JACKSON
Keith D. Jackson
Title
Chairman and Chief Executive Officer (principal
executive officer)
Executive Vice President and Chief Financial
Officer (principal financial officer)
Senior Vice President, Finance, Chief Accounting
Officer, Corporate Controller and Treasurer
(principal accounting officer)
Director
Director
Director
Director
102
Signature
/s/ ROGER D. MCDANIEL
Roger D. McDaniel
/s/ PETER J. SIMONE
Peter J. Simone
Title
Director
Director
103
INDEX TO EXHIBITS
Unless otherwise indicated, each of the following exhibits has been previously filed with the Securities
and Exchange Commission by the Company under File No. 0-16244.
Number
Exhibit
Incorporated by Reference to the Following Documents
2.1
Stock Purchase Agreement dated August 15,
2010 among Veeco Instruments Inc.
(Veeco), Veeco Metrology Inc. and Bruker
Corporation
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2010,
Exhibit 2.1
3.1
Amended and Restated Certificate of
Incorporation of Veeco dated December 1,
1994, as amended June 2, 1997 and July 25,
1997.
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, Exhibit 3.1
3.2
Amendment to Certificate of Incorporation
of Veeco dated May 29, 1998.
Annual Report on Form 10-K for the year
ended December 31, 2000, Exhibit 3.2
3.3
Amendment to Certificate of Incorporation
of Veeco dated May 5, 2000.
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000, Exhibit 3.1
3.4
Certificate of Designation, Preferences, and
Rights of Series A Junior Participating
Preferred Stock of Veeco.
Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001, Exhibit 3.1
3.5
Amendment to Certificate of Incorporation
of Veeco dated May 16, 2002
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2009,
Exhibit 3.1
3.6
Amendment to Certificate of Incorporation
of Veeco dated May 14, 2010
Annual Report on Form 10-K for the year
ended December 31, 2010, Exhibit 3.8
3.7
Fourth Amended and Restated Bylaws of
Veeco, effective October 23, 2008
Current Report on Form 8-K filed
October 27, 2008, Exhibit 3.1
3.8
Amendment No. 1 to the Fourth Amended
and Restated Bylaws of Veeco effective
May 20, 2010
Current Report on Form 8-K, filed May 26,
2010, Exhibit 3.1
3.9
Amendment No. 2 to the Fourth Amended
and Restated Bylaws of Veeco effective
October 20, 2011
Current Report on Form 8-K, filed
October 24, 2011, Exhibit 3.1
10.1
Loan Agreement dated as of December 15,
1999 between Applied Epi, Inc. and Jackson
National Life Insurance Company.
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001,
Exhibit 10.2
10.2
Amendment to Loan Documents effective as
of September 17, 2001 between Applied
Epi, Inc. and Jackson National Life
Insurance Company (executed in June
2002).
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002, Exhibit 10.2
10.3
Promissory Note dated as of December 15,
1999 issued by Applied Epi, Inc. to Jackson
National Life Insurance Company.
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001,
Exhibit 10.3
104
Number
Exhibit
Incorporated by Reference to the Following Documents
10.4*
Form of Indemnification Agreement entered
into between Veeco and each of its directors
and executive officers.
Current Report on Form 8-K filed on
October 23, 2006, Exhibit 10.1
10.5*
Veeco Amended and Restated 2000 Stock
Incentive Plan, effective July 20, 2006.
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006, Exhibit 10.4
10.6*
Amendment No. 1 effective April 18, 2007
(ratified by the Board August 7, 2007) to
Veeco Amended and Restated 2000 Stock
Incentive Plan.
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2007, Exhibit 10.1
10.7*
Amendment No. 2 dated January 22, 2009
to Veeco Amended and Restated 2000 Stock
Incentive Plan.
Annual Report on Form 10-K for the year
ended December 31, 2008, Exhibit 10.41
10.8*
Form of Restricted Stock Agreement
pursuant to the Veeco 2000 Stock Incentive
Plan, effective November 2005
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2005,
Exhibit 10.3
10.9*
Form of Notice of Restricted Stock Award
and related terms and conditions pursuant
to the Veeco 2000 Stock Incentive Plan,
effective June 2006
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2006,
Exhibit 10.3
10.10*
Veeco 2010 Stock Incentive Plan, effective
May 14, 2010
Registration Statement on Form S-8 (File
Number 333-166852) filed May 14, 2010,
Exhibit 10.1
10.11*
Form of 2010 Stock Incentive Plan Stock
Option Agreement (2012 rev.)
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2012, Exhibit 10.2
10.12*
Form of 2010 Stock Incentive Plan
Restricted Stock Agreement (2012 rev.)
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2012, Exhibit 10.3
10.13*
Form of 2010 Stock Incentive Plan
Restricted Stock Unit Agreement (2012 rev.)
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2012, Exhibit 10.4
10.14*
Form of 2010 Stock Incentive Plan
Restricted Stock Agreement (Non-Employee
Director) (2011 rev.)
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2012, Exhibit 10.5
10.15*
Form of 2010 Stock Incentive Plan
Restricted Stock Agreement (Performance
Based) (2012 rev.)
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2012, Exhibit 10.6
10.16*
Veeco 2013 Inducement Stock Incentive
Plan, effective September 26, 2013
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2012,
Exhibit 10.1
10.17*
Form of 2013 Inducement Stock Incentive
Plan Stock Option Agreement
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2012,
Exhibit 10.2
10.18*
Form of 2013 Inducement Stock Incentive
Plan Restricted Stock Unit Agreement
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2012,
Exhibit 10.3
105
Number
Exhibit
Incorporated by Reference to the Following Documents
10.19*
Veeco Performance-Based Restricted Stock
2010
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2010, Exhibit 10.2
10.20*
Veeco 2010 Management Bonus Plan dated
January 22, 2010
Quarterly Report on Form 10-Q for the
quarter ended March 31, 2010, Exhibit 10.2
10.21*
Veeco 2010 Special Profit Sharing Plan
dated February 15, 2010
Quarterly Report on Form 10-Q for the
quarter ended March 31, 2010, Exhibit 10.3
10.22*
Senior Executive Change in Control Policy
effective as of September 12, 2008
Quarterly Report on Form 10-Q for the
quarter ended September 30, 2008,
Exhibit 10.3
10.23*
Amendment No. 1 dated December 23, 2008
(effective September 12, 2008) to Veeco
Senior Executive Change in Control Policy
Annual Report on Form 10-K for the year
ended December 31, 2008, Exhibit 10.37
10.24*
Employment Agreement effective as of
July 1, 2007 between Veeco and John R.
Peeler
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2007, Exhibit 10.3
10.25*
Amendment effective December 31, 2008 to
Employment Agreement between Veeco and
John R. Peeler
Annual Report on Form 10-K for the year
ended December 31, 2008, Exhibit 10.38
10.26*
Second Amendment effective June 11, 2010
to Employment Agreement between Veeco
and John R. Peeler
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2010, Exhibit 10.1
10.27*
Third Amendment effective April 27, 2012
to Employment Agreement between Veeco
and John R. Peeler
Quarterly Report on Form 10-Q for the
quarter ended March 31, 2012, Exhibit 10.2
10.28*
Employment Agreement dated
December 17, 2009 (effective January 18,
2010) between Veeco and David D. Glass
Quarterly Report on Form 10-Q for the
quarter ended March 31, 2010, Exhibit 10.1
10.29*
Letter Agreement dated January 21, 2004
between Veeco and John P. Kiernan.
Annual Report on Form 10-K for the year
ended December 31, 2003, Exhibit 10.38
10.30*
Amendment effective June 9, 2006 to Letter
Agreement between Veeco and John P.
Kiernan
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006, Exhibit 10.3
10.31*
Amendment effective December 31, 2008 to
Letter Agreement between Veeco and
John P. Kiernan
Annual Report on Form 10-K for the year
ended December 31, 2008, Exhibit 10.40
10.32*
Letter agreement effective as of June 19,
2009 between Veeco and John P. Kiernan
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2009, Exhibit 10.2
10.33*
Letter agreement effective as of January 4,
2010 between Veeco and Peter Collingwood
Quarterly Report on Form 10-Q for the
quarter ended March 31, 2012, Exhibit 10.1
10.34*
Veeco 2011 Management Bonus Plan, dated
January 26, 2011
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2011, Exhibit 10.1
106
Number
Exhibit
Incorporated by Reference to the Following Documents
10.35*
Service Agreement effective January 1, 2012
between Veeco and Edward H. Braun
Annual Report on Form 10-K for the year
ended December 31, 2011, Exhibit 10.29
10.36*
Letter Agreement dated January 30, 2012
between Veeco and Dr. William J. Miller
Annual Report on Form 10-K for the year
ended December 31, 2011, Exhibit 10.30
21.1
Subsidiaries of the Registrant.
Filed herewith
23.1
Consent of Ernst & Young LLP.
Filed herewith
31.1
Certification of Chief Executive Officer
pursuant to Rule 13a-14(a) or
Rule 15d-14(a) of the Securities and
Exchange Act of 1934.
Filed herewith
31.2
Certification of Chief Financial Officer
pursuant to Rule 13a-14(a) or
Rule 15d-14(a) of the Securities and
Exchange Act of 1934.
Filed herewith
32.1
Certification of Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002
Filed herewith
32.2
Certification of Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002
Filed herewith
101.INS
XBRL Instance
**
101.XSD
XBRL Schema
**
101.PRE
XBRL Presentation
**
101.CAL
XBRL Calculation
**
101.DEF
XBRL Definition
**
101.LAB
XBRL Label
**
*
Indicates a management contract or compensatory plan or arrangement, as required by Item 15(a)
(3) of Form 10-K.
**
Filed herewith electronically
107
(This page has been left blank intentionally.)
Veeco Instruments Inc. and Subsidiaries
Index to Consolidated Financial Statements and
Financial Statement Schedule
Page
Management’s Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial
Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm on Financial Statements . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2012 and 2011 . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010 . . .
Consolidated Statements of Comprehensive Income for the years ended December 31, 2012,
2011 and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Equity for the years ended December 31, 2012, 2011 and 2010 . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule II—Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-1
.
F-2
.
.
.
.
F-4
F-6
F-7
F-8
.
.
.
.
.
F-9
F-10
F-12
F-13
S-1
Management’s Report on Internal Control
Over Financial Reporting
Management of Veeco and its consolidated subsidiaries, under the supervision of its Chief Executive
Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
Internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
reporting purposes in accordance with generally accepted accounting principles (GAAP). Because of its
inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate. A material weakness is a deficiency, or a combination
of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the annual or interim financial statements will not be prevented or
detected on a timely basis.
Veeco management, under the supervision of its Chief Executive Officer and Chief Financial Officer,
conducted an assessment of the effectiveness of its internal control over financial reporting as of
December 31, 2012 based on the criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In connection with
the above assessment, Veeco management identified the following material weaknesses:
Inadequate and ineffective controls over the recognition of revenue
We did not have adequate controls to ensure that revenue was recorded in accordance with GAAP.
Specifically, we noted the following with respect to our accounting for certain revenue transactions:
• We did not maintain a sufficient complement of personnel with an appropriate level of accounting
knowledge, experience, and training in the application of US GAAP related to revenue recognition
for multiple-element arrangements;
• We did not design and maintain effective controls over the adequate review and approval of
customer orders at certain of our foreign subsidiaries to ensure that the order documentation
received from the customer constituted the final order documentation. Additionally, in some cases,
our foreign subsidiaries did not always communicate to our corporate accounting staff all of the
information necessary to make accurate revenue recognition determinations;
• We did not design and maintain adequate procedures or effective review and approval controls over
the accurate recording, presentation and disclosure of revenue and related costs related to multipleelement arrangements, including ensuring that multiple-element arrangements were identified,
evaluated and effectively reviewed by appropriate accounting personnel. Specifically, we did not
establish adequate procedures or design effective controls to:
• Identify the nature of contracts, capture necessary data and determine how revenue should
be recognized in accordance with applicable revenue recognition guidance;
• Ensure consistent communication and coordination between and among various finance and
non-finance personnel about the scope, terms and modifications to customer arrangements;
and
• Ensure that all elements included in multiple-element arrangements were identified and
accounted for appropriately.
• Assess whether vendor-specific objective evidence, third-party evidence of fair value or, for
periods subsequent to January 1, 2011, adequate documentation of management’s
F-2
determination of best estimate of selling price existed for all the elements in the
arrangement.
As a result of the material weaknesses described above, management has concluded that, as of
December 31, 2012, our internal control over financial reporting was not effective. The Company’s
independent registered public accounting firm audited the effectiveness of internal control over
financial reporting as of December 31, 2012. Their report on the effectiveness of internal control over
financial reporting as of December 31, 2012 is set forth herein. The Company’s independent registered
public accounting firm has issued an unqualified opinion on the Company’s consolidated financial
statements for 2012, which is included in Part II, Item 8 of this annual report on Form 10-K.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2012
has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in
their report which appears under the heading ‘‘Report of Independent Registered Public Accounting
Firm on Internal Control Over Financial Reporting.’’
Veeco Instruments Inc.
Plainview, NY
November 3, 2013
/s/ JOHN R. PEELER
John R. Peeler
Chairman and Chief Executive Officer
Veeco Instruments Inc.
November 3, 2013
/s/ DAVID D. GLASS
David D. Glass
Executive Vice President and Chief Financial Officer
Veeco Instruments Inc.
November 3, 2013
F-3
Report of Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting
The Board of Directors and Shareholders of Veeco Instruments Inc.
We have audited Veeco Instruments Inc. and Subsidiaries (the ‘‘Company’’) internal control over
financial reporting as of December 31, 2012, based on criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (1992 framework) (the COSO criteria). The Company’s management is responsible for
maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained
in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of the company’s
annual or interim financial statements will not be prevented or detected on a timely basis. The
Company’s management identified material weaknesses in the control environment and at the control
activity level over revenue recognition, as detailed in Management’s Report on Internal Control Over
Financial Reporting. We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of
December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive
income, equity, and cash flows for each of the three years in the period ended December 31, 2012.
These material weaknesses were considered in determining the nature, timing and extent of audit tests
applied in our audit of the 2012 consolidated financial statements, and this report does not affect our
report dated November 3, 2013, which expressed an unqualified opinion on those consolidated financial
statements.
F-4
In our opinion, because of the effect of the material weaknesses described above on the achievement of
the objectives of the control criteria, the Company has not maintained effective internal control over
financial reporting as of December 31, 2012, based on the COSO criteria.
/s/ ERNST & YOUNG LLP
New York, New York
November 3, 2013
F-5
Report of Independent Registered Public Accounting Firm on Financial Statements
The Board of Directors and Shareholders of Veeco Instruments Inc.
We have audited the accompanying consolidated balance sheets of Veeco Instruments Inc. and
Subsidiaries (the ‘‘Company’’) as of December 31, 2012 and 2011, and the related consolidated
statements of income, comprehensive income, equity, and cash flows for each of the three years in the
period ended December 31, 2012. Our audits also included the financial statement schedule in the
index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements and schedule
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company at December 31, 2012 and 2011, and the
consolidated results of their operations and their cash flows for each of the three years in the period
ended December 31, 2012, in conformity with U.S. generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Company’s internal control over financial reporting as of December 31,
2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated
November 3, 2013, expressed an adverse opinion thereon.
/s/ ERNST & YOUNG LLP
New York, New York
November 3, 2013
F-6
Veeco Instruments Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
December 31,
2012
2011
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . .
Assets of discontinued segment held for sale .
Deferred income taxes . . . . . . . . . . . . . . . . .
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$384,557
192,234
2,017
63,169
59,807
32,155
—
10,545
$ 217,922
273,591
577
95,038
113,434
40,756
2,341
10,885
Total current assets . . . . . . . . . . . . .
Property, plant and equipment at cost, net
Goodwill . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . .
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744,484
98,302
55,828
935
20,974
16,781
754,544
86,067
55,828
—
25,882
13,742
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$937,304
$ 936,063
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$ 26,087
74,260
9,380
2,292
—
268
$ 40,398
106,626
11,305
3,532
5,359
248
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
112,287
167,468
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,137
2,138
4,530
5,029
2,406
640
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
126,092
175,543
—
—
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.
Liabilities and equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . .
Liabilities of discontinued segment held for sale
Current portion of long-term debt . . . . . . . . . .
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Equity:
Preferred stock, 500,000 shares authorized; no shares issued and outstanding .
Common stock; $.01 par value; authorized 120,000,000 shares; 39,328,503 and
39,328,503 shares issued and outstanding in 2012; and 44,047,264 and
38,768,436 shares issued and outstanding in 2011 . . . . . . . . . . . . . . . . . . . .
Additional paid-in-capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: treasury stock, at cost; 5,278,828 shares in 2011 . . . . . . . . . . . . . . . . . .
393
708,723
96,123
5,973
—
435
688,353
265,317
6,590
(200,175)
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
811,212
760,520
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$937,304
$ 936,063
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share data)
2012
For the year ended
December 31,
2011
2010
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$516,020
300,887
$979,135
504,801
$930,892
481,407
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
215,133
474,334
449,485
Operating expenses (income):
Selling, general and administrative
Research and development . . . . . .
Amortization . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . .
Asset impairment . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . .
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73,110
95,153
4,908
3,813
1,335
(398)
95,134
96,596
4,734
1,288
584
(261)
87,250
56,948
3,703
(179)
—
(1,490)
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
177,921
198,075
146,232
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,212
276,259
303,253
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,476
(1,502)
3,776
(4,600)
1,629
(8,201)
(824)
(3,349)
(6,572)
—
Interest income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
974
—
Income from continuing operations before income taxes . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38,186
11,657
272,086
81,584
296,681
19,505
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . .
26,529
190,502
277,176
Discontinued operations:
Income (loss) from discontinued operations before income taxes . .
Income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,269
1,870
(91,885)
(29,370)
129,776
45,192
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . .
4,399
(62,515)
84,584
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 30,928
$127,987
$
0.69
0.11
$
Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.80
$
Diluted :
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.68
0.11
$
Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.79
$
Income (loss) per common share:
Basic:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38,477
39,051
$361,760
4.80 $
(1.57)
3.23
$
9.16
4.63 $
(1.52)
6.52
1.99
3.11
$
39,658
41,155
The accompanying notes are an integral part of these consolidated financial statements.
F-8
7.02
2.14
8.51
39,499
42,514
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
For the year ended December 31,
2012
2011
2010
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30,928
$127,987
$361,760
Other comprehensive (loss) income, net of tax
Unrealized (loss) gain on available-for-sale securities . . . . . . . . . . . .
Less: Reclassification adjustments for gains included in net income
(68)
(24)
314
(271)
99
(2)
Net unrealized (loss) gain on available-for-sale securities . . . . . . . . .
Minimum pension liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(92)
(137)
(388)
43
(43)
794
97
(120)
(1,322)
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30,311
$128,781
$360,415
The accompanying notes are an integral part of these consolidated financial statements.
F-9
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Equity
(Dollars in thousands, except share data)
Additional
Common Stock
Treasury
Paid-in
Shares
Amount
Stock
Capital
Balance as of January 1, 2010 . . . .
Exercise of stock options . . . . . . . .
Equity-based compensation expensecontinuing operations . . . . . . . .
Equity-based compensation expensediscontinued operations . . . . . . .
Issuance, vesting and cancellation of
restricted stock . . . . . . . . . . . . .
Treasury stock . . . . . . . . . . . . . . .
Excess tax benefits from stock option
exercises . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . .
Minimum pension liability . . . . . . .
Unrealized gain on available-for-sale
securities . . . . . . . . . . . . . . . .
Reclassification adjustments for gains
included in net income . . . . . . .
Net income . . . . . . . . . . . . . . . .
Balance as of December 31, 2010 . .
Exercise of stock options . . . . . . . .
Equity-based compensation expensecontinuing operations . . . . . . . .
Equity-based compensation expensediscontinued operations . . . . . . .
Issuance, vesting and cancellation of
restricted stock . . . . . . . . . . . . .
Treasury stock . . . . . . . . . . . . . . .
Debt Conversion . . . . . . . . . . . . .
Excess tax benefits from stock option
exercises . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . .
Minimum pension liability . . . . . . .
Unrealized gain on available-for-sale
securities . . . . . . . . . . . . . . . .
Reclassification adjustments for gains
included in net income . . . . . . .
Net income . . . . . . . . . . . . . . . .
. . 39,003,114
. . 2,499,591
$382
25
$
—
—
$575,860
45,139
(Accumulated Accumulated
Deficit)
Other
Retained
Comprehensive
Earnings
Income
$(224,324)
—
Total
Equity
$ 7,141
—
$ 359,059
45,164
. .
—
—
—
8,769
—
—
8,769
. .
—
—
—
8,551
—
—
8,551
(4,621)
—
—
—
—
—
(4,619)
(38,098)
. .
(46,155)
. . (1,118,600)
2
—
—
(38,098)
. .
. .
. .
—
—
—
—
—
—
—
—
—
23,271
—
—
—
—
—
. .
—
—
—
—
—
. .
. .
—
—
—
—
—
—
—
—
—
361,760
. . 40,337,950
. .
688,105
409
7
656,969
10,707
137,436
—
5,796
—
762,512
10,714
(38,098)
—
—
(1,322)
(120)
99
(2)
—
23,271
(1,322)
(120)
99
(2)
361,760
. .
—
—
—
12,807
—
—
12,807
. .
—
—
—
689
—
—
689
(3,175)
—
(50)
—
—
—
—
—
—
—
(106)
—
—
794
(43)
314
. .
131,196
. . (4,160,228)
. . 1,771,413
1
—
18
—
(162,077)
—
. .
. .
. .
—
—
—
—
—
—
—
—
—
10,406
—
—
. .
—
—
—
—
—
. .
. .
—
—
—
—
—
—
—
—
—
127,987
Balance as of December 31, 2011 . . . . 38,768,436
$435
$(200,175) $688,353
$ 265,317
(271)
—
$ 6,590
The accompanying notes are an integral part of these consolidated financial statements.
F-10
(3,174)
(162,077)
(32)
10,406
688
(43)
314
(271)
127,987
$ 760,520
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Equity (Continued)
(Dollars in thousands, except share data)
Additional
Common Stock
Treasury
Paid-in
Shares
Amount
Stock
Capital
Balance as of December 31, 2011 . .
Exercise of stock options . . . . . . . .
Equity-based compensation expensecontinuing operations . . . . . . . .
Issuance, vesting and cancellation of
restricted stock . . . . . . . . . . . . .
Treasury stock . . . . . . . . . . . . . . .
Prior period debt conversion
adjustment . . . . . . . . . . . . . . .
Excess tax benefits from stock option
exercises . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . .
Minimum pension liability . . . . . . .
Unrealized loss on available-for-sale
securities. . . . . . . . . . . . . . . . .
Reclassification adjustments for gains
included in net income . . . . . . .
Net income . . . . . . . . . . . . . . . .
. . 38,768,436
. .
351,436
$435
4
$(200,175) $688,353
—
5,405
—
—
Total
Equity
$ 265,317
—
$ 6,590
—
$ 760,520
5,409
—
—
14,268
—
—
(1,725)
—
. .
—
. .
. .
208,631
—
. .
—
—
—
310
—
—
310
. .
. .
. .
—
—
—
—
—
—
—
—
—
2,119
—
—
—
—
—
—
(388)
(137)
2,119
(388)
(137)
. .
—
—
—
—
—
(68)
(68)
. .
. .
—
—
—
—
—
—
—
—
—
30,928
(24)
—
(24)
30,928
Balance as of December 31, 2012 . . . . 39,328,503
$393
—
$708,723
$ 96,123
7
(53)
—
200,175
$
14,268
(Accumulated Accumulated
Deficit)
Other
Retained
Comprehensive
Earnings
Income
(1,732)
—
—
(200,122)
$ 5,973
The accompanying notes are an integral part of these consolidated financial statements.
F-11
$ 811,212
Veeco Instruments Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
Year ended December 31,
Cash Flows from Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash equity-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash asset impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on disposal of segment (see Note 3) . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock option exercises . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash items from discontinued operations . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . .
Supplier deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses, deferred revenue and other current liabilities . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers to restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . .
2012
2011
2010
$ 30,928
$ 127,987
$ 361,760
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.
16,192
—
14,268
1,335
—
(340)
(4,112)
(2,119)
262
(706)
12,892
1,260
12,807
584
3,349
11,276
—
(10,406)
(31)
44,381
10,789
3,058
8,769
—
—
(25,141)
(156,290)
(23,271)
(206)
14,030
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.
.
31,215
53,937
5,518
3,006
(12,106)
(34,227)
1,199
(1,440)
11,085
(1,932)
56,843
(18,627)
(25,487)
12,400
8,098
(72,723)
(42,204)
—
(6,957)
—
(83,160)
(49,535)
(4,749)
(23,296)
7,299
85,500
78,894
—
(4,742)
(5,495)
111,963
115,442
194,214
(24,994)
—
(10,341)
—
—
244,929
(165,080)
—
49
3,758
(60,364)
(28,273)
—
75,540
—
707,649
(588,453)
—
195
—
(10,724)
—
—
(76,115)
213,641
32,971
(506,103)
225,188
13
(492)
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48,321
106,294
(121,621)
Cash Flows from Financing Activities
Proceeds from stock option exercises . . . . . .
Restricted stock tax withholdings . . . . . . . .
Excess tax benefits from stock option exercises
Purchases of treasury stock . . . . . . . . . . . .
Repayments of long-term debt . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
5,409
(1,725)
2,119
—
(248)
—
10,714
(3,173)
10,406
(162,077)
(105,803)
(2)
45,164
(4,619)
23,271
(38,098)
(213)
—
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . .
5,555
796
(249,935)
989
25,505
(1,466)
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
166,635
217,922
(27,210)
245,132
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 384,557
$ 217,922
$ 245,132
. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
$
209
11,566
$
1,393
89,745
$
4,727
9,925
. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
$
1,230
—
$
—
—
$
3,913
850
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Flows from Investing Activities
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments for net assets of businesses acquired . . . . . . . . . . . . . .
Payment for purchase of cost method investment . . . . . . . . . . . .
Transfers from (to) restricted cash related to discontinued operations
Proceeds from the maturity of CDARS . . . . . . . . . . . . . . . . . .
Proceeds from sales of short-term investments . . . . . . . . . . . . . .
Payments for purchases of short-term investments . . . . . . . . . . . .
Proceeds from disposal of segment, net of transaction fees . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of assets from discontinued segment . . . . . . . .
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Supplemental disclosure of cash flow information
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash investing and financing activities
Transfers from property, plant and equipment to inventory
Transfers from inventory to property, plant and equipment
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The accompanying notes are an integral part of these consolidated financial statements.
F-12
96,632
148,500
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012
1. Description of Business and Significant Accounting Policies
Business
Veeco Instruments Inc. (together with its consolidated subsidiaries, ‘‘Veeco,’’ the ‘‘Company’’ or ‘‘we’’)
creates Process Equipment solutions that enable technologies for a cleaner and more productive world.
We design, manufacture and market equipment primarily sold to make light emitting diodes (‘‘LED’’s)
and hard-disk drives, as well as for emerging applications such as concentrator photovoltaics, power
semiconductors, wireless components, micro-electromechanical systems (‘‘MEMS’’), and other
next-generation devices.
Veeco’s LED & Solar segment designs and manufactures metal organic chemical vapor deposition
(‘‘MOCVD’’) and molecular beam epitaxy (‘‘MBE’’) systems and components sold to manufacturers of
LEDs, wireless devices, power semiconductors, and concentrator photovoltaics, as well as for R&D
applications. In 2011 we discontinued the sale of our products related to Copper, Indium, Gallium,
Selenide (‘‘CIGS’’) solar systems technology.
Veeco’s Data Storage segment designs and manufactures the critical technologies used to create thin film
magnetic heads (‘‘TFMHs’’) that read and write data on hard disk drives. These technologies include
ion beam etch (‘‘IBE’’), ion beam deposition (‘‘IBD’’), diamond-like carbon (‘‘DLC’’), physical vapor
deposition (‘‘PVD’’), chemical vapor deposition (‘‘CVD’’), and slicing, dicing and lapping systems.
While these technologies are primarily sold to hard drive customers, they also have applications in
optical coatings, MEMS and magnetic sensors and other markets.
Accounting Review
During 2012, the Company commenced an internal investigation in response to information it received
concerning certain issues, including contract documentation issues, related to a limited number of
customer transactions in South Korea. During the review of information in connection with the internal
investigation, questions were raised that prompted the Company to conduct a comprehensive and
extensive review of its revenue recognition accounting for certain multiple element arrangements. The
Company retained experienced counsel, assisted by an experienced outside accounting consulting firm,
to oversee the accounting review undertaken by the Company. The Company completed that review in
October 2013.
The delay in filing our periodic reports began with an announcement, on November 15, 2012, regarding
our accounting review of our application of accounting principles related to the Company’s sales of
multiple element arrangements of MOCVD systems in certain transactions originating in 2009 and
2010. We conducted examinations of our MOCVD transactions to determine whether the revenue and
related expenses were recognized in the appropriate accounting period. Subsequently, we expanded our
accounting review to other relevant transactions of similar multiple element arrangements arising since
2009. In the course of our accounting review, we have examined more than 100 multiple element
arrangements.
The primary focus of the Company’s accounting review concerned whether the Company correctly
interpreted and applied generally accepted accounting principles relating to revenue recognition for
multiple element arrangements as set forth in Securities and Exchange Commission Staff Accounting
Bulletin No. 104: Revenue Recognition, and ASC 605-25—Revenue Recognition: Multiple Element
Arrangements (formerly known as EITF 00-21 and EITF 08-01), to certain sales of Veeco products.
F-13
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
1. Description of Business and Significant Accounting Policies (Continued)
We often enter into large orders with our customers consisting of several elements. For accounting
purposes, these are called multiple element arrangements, and can include systems, upgrades, spare
parts, services, as well as certain other items. Our accounting review examined the selected sales
transactions to determine whether the Company appropriately: (1) identified all of the elements in its
arrangements with customers; (2) determined the proper units of accounting as part of the
arrangements; and (3) allocated the arrangement’s consideration to each of the units of accounting
under the applicable accounting standards. As a result of our accounting review we identified errors in
the consolidated financial statements related to prior periods. The errors were primarily attributable to
the misapplication of U.S. GAAP for recognizing revenue and related costs under multiple element
arrangements and accounting for warranties. We assessed the materiality of these errors, both
quantitatively and qualitatively, and concluded that these errors were not material, individually or in the
aggregate, to our consolidated financial statements in this or any other prior periods. During the course
of our review, we identified net cumulative errors which overstated cumulative net income from
continuing operations through December 31, 2011 by $0.6 million. As a result, in 2012 we recorded
adjustments to correct all prior periods resulting in an increase in revenues of $2.2 million and a
decrease in net income from continuing operations of $0.6 million.
Basis of Presentation
We report interim quarters, other than fourth quarters which always end on December 31, on a
13-week basis ending on the last Sunday within such period. The interim quarter ends are determined
at the beginning of each year based on the 13-week quarters. The 2012 interim quarter ends were
April 1, July 1 and September 30. The 2011 interim quarter ends were April 3, July 3 and October 2.
For ease of reference, we report these interim quarter ends as March 31, June 30 and September 30 in
our interim consolidated financial statements. We have reclassified certain amounts previously reported
in our financial statements to conform to the current presentation, including amounts related to
discontinued operations.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant estimates made by management include:
the best estimate of selling price for our products and services; allowance for doubtful accounts;
inventory valuation; recoverability and useful lives of property, plant and equipment and identifiable
intangible assets; investment valuations; fair value of derivatives; recoverability of goodwill and long
lived assets; recoverability of deferred tax assets; liabilities for product warranty; accruals for
contingencies; equity-based payments, including forfeitures and performance based vesting; and
liabilities for tax uncertainties. Actual results could differ from those estimates.
Principles of Consolidation
The accompanying Consolidated Financial Statements include the accounts of Veeco and its
subsidiaries. Intercompany items and transactions have been eliminated in consolidation.
F-14
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
1. Description of Business and Significant Accounting Policies (Continued)
Revenue Recognition
We recognize revenue when all of the following criteria have been met: persuasive evidence of an
arrangement exists with a customer; delivery of the specified products has occurred or services have
been rendered; prices are contractually fixed or determinable; collectability is reasonably assured.
Revenue is recorded including shipping and handling costs and excluding applicable taxes related to
sales. A significant portion of our revenue is derived from contractual arrangements with customers
that have multiple elements, such as systems, upgrades, components, spare parts, maintenance and
service plans. For sales arrangements that contain multiple elements, we split the arrangement into
separate units of accounting if the individually delivered elements have value to the customer on a
standalone basis. We also evaluate whether multiple transactions with the same customer or related
party should be considered part of a multiple element arrangement, whereby we assess, among other
factors, whether the contracts or agreements are negotiated or executed within a short time frame of
each other or if there are indicators that the contracts are negotiated in contemplation of each other.
When we have separate units of accounting, we allocate revenue to each element based on the
following selling price hierarchy: vendor-specific objective evidence (‘‘VSOE’’) if available; third party
evidence (‘‘TPE’’) if VSOE is not available; or our best estimate of selling price (‘‘BESP’’) if neither
VSOE nor TPE is available. For the majority of the elements in our arrangements we utilize BESP.
The accounting guidance for selling price hierarchy did not include BESP for arrangements entered
into prior to January 1, 2011, and as such we recognized revenue for those arrangements as described
below.
We consider many facts when evaluating each of our sales arrangements to determine the timing of
revenue recognition, including the contractual obligations, the customer’s creditworthiness and the
nature of the customer’s post-delivery acceptance provisions. Our system sales arrangements, including
certain upgrades, generally include field acceptance provisions that may include functional or
mechanical test procedures. For the majority of our arrangements, a customer source inspection of the
system is performed in our facility or test data is sent to the customer documenting that the system is
functioning to the agreed upon specifications prior to delivery. Historically, such source inspection or
test data replicates the field acceptance provisions that will be performed at the customer’s site prior to
final acceptance of the system. As such, we objectively demonstrate that the criteria specified in the
contractual acceptance provisions are achieved prior to delivery and, therefore, we recognize revenue
upon delivery since there is no substantive contingency remaining related to the acceptance provisions
at that date, subject to the retention amount constraint described below. For new products, new
applications of existing products or for products with substantive customer acceptance provisions where
we cannot objectively demonstrate that the criteria specified in the contractual acceptance provisions
have been achieved prior to delivery, revenue and the associated costs are deferred and fully
recognized upon the receipt of final customer acceptance, assuming all other revenue recognition
criteria have been met.
Our system sales arrangements, including certain upgrades, generally do not contain provisions for right
of return or forfeiture, refund, or other purchase price concessions. In the rare instances where such
provisions are included, we defer all revenue until such rights expire. In many cases our products are
sold with a billing retention, typically 10% of the sales price (the ‘‘retention amount’’), which is
typically payable by the customer when field acceptance provisions are completed. The amount of
F-15
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
1. Description of Business and Significant Accounting Policies (Continued)
revenue recognized upon delivery of a system or upgrade is limited to the lower of i) the amount that
is not contingent upon acceptance provisions or ii) the value allocated to the delivered elements, if
such sale is part of a multiple-element arrangement.
For transactions entered into prior to January 1, 2011, under the accounting rules for multiple-element
arrangements in place at that time, we deferred the greater of the retention amount or the relative fair
value of the undelivered elements based on VSOE. When we could not establish VSOE or TPE for all
undelivered elements of an arrangement, revenue on the entire arrangement was deferred until the
earlier of the point when we did have VSOE for all undelivered elements or the delivery of all
elements of the arrangement.
Our sales arrangements, including certain upgrades, generally include installation. The installation
process is not deemed essential to the functionality of the equipment since it is not complex; that is, it
does not require significant changes to the features or capabilities of the equipment or involve building
elaborate interfaces or connections subsequent to factory acceptance. We have a demonstrated history
of consistently completing installations in a timely manner and can reliably estimate the costs of such
activities. Most customers engage us to perform the installation services, although there are other thirdparty providers with sufficient knowledge who could complete these services. Based on these factors, we
deem the installation of our systems to be inconsequential and perfunctory relative to the system as a
whole, and as a result, do not consider such services to be a separate element of the arrangement. As
such, we accrue the cost of the installation at the time of revenue recognition for the system.
In Japan, where our contractual terms with customers generally specify title and risk and rewards of
ownership transfer upon customer acceptance, revenue is recognized and the customer is billed upon
the receipt of written customer acceptance.
Revenue related to maintenance and service contracts is recognized ratably over the applicable contract
term. Component and spare part revenue are recognized at the time of delivery in accordance with the
terms of the applicable sales arrangement.
Cash and Cash Equivalents
Cash and cash equivalents include cash and certain highly liquid investments. Highly liquid investments
with maturities of three months or less when purchased may be classified as cash equivalents. Such
items may include liquid money market accounts, treasury bills, government agency securities and
corporate debt. The investments that are classified as cash equivalents are carried at cost, which
approximates fair value.
Short-Term Investments
We determine the appropriate balance sheet classification of our investments at the time of purchase
and evaluate the classification at each balance sheet date. As part of our cash management program,
we maintain a portfolio of marketable securities which are classified as available-for-sale. These
securities include FDIC guaranteed corporate debt, treasury bills and Government agency securities
with maturities of greater than three months when purchased. Securities classified as available-for-sale
are carried at fair market value, with the unrealized gains and losses, net of tax, included in the
F-16
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
1. Description of Business and Significant Accounting Policies (Continued)
determination of comprehensive income (loss) and reported in equity. Net realized gains and losses are
included in net income (loss).
Accounts Receivable, Net
Accounts receivable are presented net of allowance for doubtful accounts of $0.5 million as of
December 31, 2012 and 2011. The Company evaluates the collectability of accounts receivable based on
a combination of factors. In cases where the Company becomes aware of circumstances that may
impair a customer’s ability to meet its financial obligations subsequent to the original sale, the
Company will record an allowance against amounts due, and thereby reduce the net recognized
receivable to the amount the Company reasonably believes will be collected. For all other customers,
the Company recognizes an allowance for doubtful accounts based on the length of time the receivables
are past due and consideration of other factors such as industry conditions, the current business
environment and its historical experience.
Concentration of Credit Risk
Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of
accounts receivable, short-term investments and cash and cash equivalents. We perform ongoing credit
evaluations of our customers and, where appropriate, require that letters of credit be provided on
certain foreign sales arrangements. We maintain allowances for potential credit losses and make
investments with strong, higher credit quality issuers and continuously monitor the amount of credit
exposure to any one issuer.
Inventories
Inventories are stated at the lower of cost (principally first-in, first-out method) or market. On a
quarterly basis, management assesses the valuation and recoverability of all inventories, classified as
materials (which include raw materials, spare parts and service inventory), work-in-process and finished
goods.
Materials inventory is used primarily to support the installed tool base and spare parts sales and is
reviewed for excess quantities or obsolescence by comparing on-hand balances to historical usage, and
adjusted for current economic conditions and other qualitative factors. Historically, the variability of
such estimates has been impacted by customer demand and tool utilization rates.
The work-in-process and finished goods inventory is principally used to support system sales and is
reviewed for excess quantities or obsolescence by considering whether on hand inventory would be
utilized to fulfill the related backlog. As the Company typically receives deposits for its orders, the
variability of this estimate is reduced as customers have a vested interest in the orders they place with
the Company. Management also considers qualitative factors such as future product demand based on
market outlook, which is based principally upon production requirements resulting from customer
purchase orders received with a customer-confirmed shipment date within the next twelve months.
Historically, the variability of these estimates of future product demand has been impacted by backlog
cancellations or modifications resulting from unanticipated changes in technology or customer demand.
F-17
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
1. Description of Business and Significant Accounting Policies (Continued)
Following identification of potential excess or obsolete inventory, management evaluates the need to
write down inventory balances to its estimated market value, if less than its cost. Inherent in the
estimates of market value are management’s estimates related to our future manufacturing schedules,
customer demand, technological and/or market obsolescence, possible alternative uses, and ultimate
realization of potential excess inventory. Unanticipated changes in demand for our products may
require a write down of inventory that could materially affect our operating results.
Goodwill and Indefinite-Lived Intangibles
We account for goodwill and intangible assets with indefinite useful lives in accordance with relevant
accounting guidance related to goodwill and other intangible assets, which states that goodwill and
intangible assets with indefinite useful lives should not be amortized, but instead tested for impairment
at least annually at the reporting unit level. Our policy is to perform this annual impairment test in the
fourth quarter, using a measurement date of October 1st, of each fiscal year or more frequently if
impairment indicators arise. Impairment indicators include, among other conditions, cash flow deficits,
a historical or anticipated decline in revenue or operating profit, adverse legal or regulatory
developments and a material decrease in the fair value of some or all of the assets.
Pursuant to the aforementioned guidance we are required to determine if it is appropriate to use the
operating segment, as defined under guidance for segment reporting, as the reporting unit, or one level
below the operating segment, depending on whether certain criteria are met. We have identified four
reporting units that are required to be reviewed for impairment. The four reporting units are
aggregated into two segments: the VIBE and Mechanical reporting units which are reported in our
Data Storage segment; and the MOCVD and MBE reporting units which are reported in our LED and
Solar segment. In identifying the reporting units management considered the economic characteristics
of operating segments including the products and services provided, production processes, types or
classes of customer and product distribution.
We perform this impairment test by first comparing the fair value of our reporting units to their
respective carrying amount. When determining the estimated fair value of a reporting unit, we utilize a
discounted future cash flow approach since reported quoted market prices are not available for our
reporting units. Developing the estimate of the discounted future cash flow requires significant
judgment and projections of future financial performance. The key assumptions used in developing the
discounted future cash flows are the projection of future revenues and expenses, working capital
requirements, residual growth rates and the weighted average cost of capital. In developing our
financial projections, we consider historical data, current internal estimates and market growth trends.
Changes to any of these assumptions could materially change the fair value of the reporting unit. We
reconcile the aggregate fair value of our reporting units to our adjusted market capitalization as a
supporting calculation. The adjusted market capitalization is calculated by multiplying the average share
price of our common stock for the last ten trading days prior to the measurement date by the number
of outstanding common shares and adding a control premium.
If the carrying value of the reporting units exceed the fair value we would then compare the implied
fair value of our goodwill to the carrying amount in order to determine the amount of the impairment,
if any.
F-18
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
1. Description of Business and Significant Accounting Policies (Continued)
Definite-Lived Intangible and Long-Lived Assets
Definite-lived intangible assets consist of purchased technology, customer-related intangible assets,
patents, trademarks, covenants not-to-compete, software licenses and deferred financing costs.
Purchased technology consists of the core proprietary manufacturing technologies associated with the
products and offerings obtained through acquisition and are initially recorded at fair value. Customerrelated intangible assets, patents, trademarks, covenants not-to-compete and software licenses that are
obtained in an acquisition are initially recorded at fair value. Other software licenses and deferred
financing costs are initially recorded at cost. Intangible assets with definitive useful lives are amortized
using the straight-line method over their estimated useful lives for periods ranging from 2 years to
17 years.
Property, plant and equipment are recorded at cost. Depreciation is provided over the estimated useful
lives of the related assets using the straight-line method for financial statement purposes. Amortization
of leasehold improvements is computed using the straight-line method over the shorter of the
remaining lease term or the estimated useful lives of the improvements.
Long-lived assets, such as property, plant, and equipment and intangible assets with definite useful
lives, are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Impairment indicators include, among other
conditions, cash flow deficits, a historical or anticipated decline in revenue or operating profit, adverse
legal or regulatory developments and a material decrease in the fair value of some or all of the assets.
Assets are grouped at the lowest level for which there are identifiable cash flows that are largely
independent of the cash flows generated by other asset groups. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted
future cash flow expected to be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset.
Cost Method of Accounting for Investments
Investee companies not accounted for under the consolidation or the equity method of accounting are
accounted for under the cost method of accounting. Under this method, the Company’s share of the
earnings or losses of such investee companies is not included in the Consolidated Balance Sheet or
Statements of Income. However, impairment charges are recognized in the Consolidated Statements of
Income. If circumstances suggest that the value of the investee company has subsequently recovered,
such recovery is not recorded.
Fair Value of Financial Instruments
We believe the carrying amounts of our financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses, reflected in the consolidated financial
statements approximate fair value due to their short-term maturities. The fair value of our debt,
including current maturities, is estimated using a discounted cash flow analysis, based on the estimated
current incremental borrowing rates for similar types of securities.
F-19
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
1. Description of Business and Significant Accounting Policies (Continued)
Translation of Foreign Currencies
Certain of our international subsidiaries operate using local functional currencies. Foreign currency
denominated assets and liabilities are translated into U.S. dollars at exchange rates in effect at the
balance sheet date, and income and expense accounts and cash flow items are translated at average
monthly exchange rates during the respective periods. Net exchange gains or losses resulting from the
translation of foreign financial statements and the effect of exchange rates on intercompany
transactions of a long-term investment nature are recorded as a separate component of equity in
accumulated other comprehensive income. Any foreign currency gains or losses related to transactions
are included in operating results.
Environmental Compliance and Remediation
Environmental compliance costs include ongoing maintenance, monitoring and similar costs. Such costs
are expensed as incurred. Environmental remediation costs are accrued when environmental
assessments and/or remedial efforts are probable and the cost can be reasonably estimated.
Research and Development Costs
Research and development costs are charged to expense as incurred and include expenses for the
development of new technology and the transition of technology into new products or services.
Warranty Costs
Our warranties are typically valid for one year from the date of final acceptance. We estimate the costs
that may be incurred under the warranty we provide for our products and record a liability in the
amount of such costs at the time the related revenue is recognized. Estimated warranty costs are
determined by analyzing specific product and historical configuration statistics and regional warranty
support costs. Our warranty obligation is affected by product failure rates, material usage, and labor
costs incurred in correcting product failures during the warranty period. Unforeseen component failures
or exceptional component performance can also result in changes to warranty costs. If actual warranty
costs differ substantially from our estimates, revisions to the estimated warranty liability would be
required.
Income Taxes
As part of the process of preparing our Consolidated Financial Statements, we are required to estimate
our income taxes in each of the jurisdictions in which we operate. This process involves estimating the
actual current tax expense, together with assessing temporary differences resulting from differing
treatment of items for tax and accounting purposes. These differences result in deferred tax assets and
liabilities, which are included within our Consolidated Balance Sheets. The carrying value of our
deferred tax assets is adjusted by a partial valuation allowance to recognize the extent to which the
future tax benefits will be recognized on a more likely than not basis. Our net deferred tax assets
consist primarily of tax credit carry forwards and timing differences between the book and tax
treatment of inventory, acquired intangible assets and other asset valuations. Realization of these net
deferred tax assets is dependent upon our ability to generate future taxable income.
F-20
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
1. Description of Business and Significant Accounting Policies (Continued)
We record valuation allowances in order to reduce our deferred tax assets to the amount expected to
be realized. In assessing the adequacy of recorded valuation allowances, we consider a variety of
factors, including the scheduled reversal of deferred tax liabilities, future taxable income, and prudent
and feasible tax planning strategies. Under the relevant accounting guidance, factors such as current
and previous operating losses are given significantly greater weight than the outlook for future
profitability in determining the deferred tax asset carrying value.
Relevant accounting guidance addresses the determination of how tax benefits claimed or expected to
be claimed on a tax return should be recorded in the financial statements. Under such guidance, we
must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the
tax position will be sustained on examination by the taxing authorities, based on the technical merits of
the position. The tax benefits recognized in the financial statements from such uncertain tax positions
are measured based on the largest benefit that has a greater than fifty percent likelihood of being
realized upon ultimate resolution.
Advertising Expense
The cost of advertising is expensed as of the first showing of each advertisement. We incurred
$0.8 million, $1.4 million and $1.3 million in advertising expenses during 2012, 2011 and 2010,
respectively.
Shipping and Handling Costs
Shipping and handling costs are costs that are incurred to move, package and prepare our products for
shipment and then to move the products to the customer’s designated location. These costs are
generally comprised of payments to third-party shippers. Shipping and handling costs are included in
cost of sales in our Consolidated Statements of Income.
Equity-Based Compensation
The Company grants equity-based awards, such as stock options and restricted stock or restricted stock
units, to certain key employees to create a clear and meaningful alignment between compensation and
shareholder return and to enable the employees to develop and maintain a stock ownership position.
While the majority of our equity awards feature time-based vesting, performance-based equity awards,
which are awarded from time to time to certain key Company executives, vest as a function of
performance, and may also be subject to the recipient’s continued employment which also acts as a
significant retention incentive.
Equity-based compensation cost is measured at the grant date, based on the fair value of the award
and is recognized as expense over the employee requisite service period. In order to determine the fair
value of stock options on the date of grant, we apply the Black-Scholes option-pricing model. Inherent
in the model are assumptions related to risk-free interest rate, dividend yield, expected stock-price
volatility and option life.
The risk-free rate assumed in valuing the options is based on the U.S. Treasury yield curve in effect at
the time of grant for the expected term of the option. The dividend yield assumption is based on the
Company’s historical and future expectation of dividend payouts. While the risk-free interest rate and
F-21
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
1. Description of Business and Significant Accounting Policies (Continued)
dividend yield are less subjective assumptions, typically based on objective data derived from public
sources, the expected stock-price volatility and option life assumptions require a level of judgment
which make them critical accounting estimates.
We use an expected stock-price volatility assumption that is a combination of both historical volatility
calculated based on the daily closing prices of our common stock over a period equal to the expected
term of the option and implied volatility, and utilization of market data of actively traded options on
our common stock, which are obtained from public data sources. We believe that the historical volatility
of the price of our common stock over the expected term of the option is a strong indicator of the
expected future volatility and that implied volatility takes into consideration market expectations of how
future volatility will differ from historical volatility. Accordingly, we believe a combination of both
historical and implied volatility provides the best estimate of the future volatility of the market price of
our common stock.
The expected option term, representing the period of time that options granted are expected to be
outstanding, is estimated using a lattice-based model incorporating historical post vest exercise and
employee termination behavior.
We estimate forfeitures using our historical experience, which is adjusted over the requisite service
period based on the extent to which actual forfeitures differ or are expected to differ, from such
estimates. Because of the significant amount of judgment used in these calculations, it is reasonably
likely that circumstances may cause the estimate to change.
With regard to the weighted-average option life assumption, we consider the exercise behavior of past
grants and model the pattern of aggregate exercises.
We settle the exercise of stock options with newly issued shares.
With respect to grants of performance based awards, we assess the probability that such performance
criteria will be met in order to determine the compensation expense. Consequently, the compensation
expense is recognized straight-line over the vesting period. If that assessment of the probability of the
performance condition being met changes, the Company would recognize the impact of the change in
estimate in the period of the change. As with the use of any estimate, and owing to the significant
judgment used to derive those estimates, actual results may vary.
The Company has elected to treat awards with only service conditions and with graded vesting as one
award. Consequently, the total compensation expense is recognized straight-line over the entire vesting
period, so long as the compensation cost recognized at any date at least equals the portion of the grant
date fair value of the award that is vested at that date.
Negotiable Letters of Credit
For certain transactions, we request that our customers provide us with a negotiable irrevocable letter
of credit drawn on a reputable financial institution. These irrevocable letters of credit are typically
issued to mature, on average, for 0 to 90 days post documentation requirements, but occasionally for
longer. For a fee, one of our banks, confirms the reputation of the issuing institution and, at our
option, monetizes these letters of credit on an non-recourse basis soon after they become negotiable.
Once we negotiate the letter of credit with the confirming bank, we have no further obligations or
F-22
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
1. Description of Business and Significant Accounting Policies (Continued)
interest in the letter of credit and they are not included in our consolidated balance sheets. The fees
that we pay are included in selling, general and administrative expense and are not material.
Recent Accounting Pronouncements
Parent’s Accounting for the Cumulative Translation Adjustment : In March 2013, the FASB issued
ASU No. 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of
Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.
This new standard is intended to resolve diversity in practice regarding the release into net income of a
cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a
foreign entity. ASU No. 2013-05 is effective prospectively for fiscal years (and interim reporting periods
within those years) beginning after December 15, 2013. We are currently reviewing this standard, but
we do not anticipate that its adoption will have a material impact on our consolidated financial
statements, absent any material transactions involving the derecognition of subsidiaries or groups of
assets within a foreign entity.
Comprehensive Income: In February 2013, the Financial Accounting Standards Board (‘‘FASB’’) issued
Accounting Standards Update (‘‘ASU’’) No. 2013-02, Comprehensive Income (Topic 220)—Reporting of
Amounts Reclassified Out of Accumulated Other Comprehensive Income, which contained amended
standards regarding disclosure requirements for items reclassified out of accumulated other
comprehensive income (‘‘AOCI’’). These amended standards require the disclosure of information
about the amounts reclassified out of AOCI by component and, in addition, require disclosure, either
on the face of the financial statements or in the notes, of significant amounts reclassified out of AOCI
by the respective line items of net income, but only if the amount reclassified is required to be
reclassified in its entirety in the same reporting period. For amounts that are not required to be
reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures
that provide additional details about those amounts. These amended standards do not change the
current requirements for reporting net income or other comprehensive income in the consolidated
financial statements. These amended standards were effective for us on January 1, 2013, and the
adoption of this guidance did not materially impact our consolidated financial statements.
Indefinite-Lived Intangible Assets: In July 2012, the FASB issued amended guidance related to
Intangibles—Goodwill and Other: Testing of Indefinite-Lived Intangible Assets for Impairment. This
amendment intends to simplify the guidance for testing the decline in the realizable value (impairment)
of indefinite-lived intangible assets other than goodwill. Some examples of intangible assets subject to
the guidance include indefinite-lived trademarks, licenses and distribution rights. The guidance allows
companies to perform a qualitative assessment about the likelihood of impairment of an indefinite-lived
intangible asset to determine whether further impairment testing is necessary, similar in approach to
the goodwill impairment test. The ASU will become effective for annual and interim impairment tests
performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The
Company early adopted this standard in the third quarter of 2012 and this guidance did not have a
material impact on its consolidated financial statements.
F-23
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
1. Description of Business and Significant Accounting Policies (Continued)
Balance Sheet: In December 2011, the FASB issued amended guidance related to the Balance Sheet
(Disclosures about Offsetting Assets and Liabilities). This amendment requires an entity to disclose
information about offsetting and related arrangements to enable users of its financial statements to
understand the effect of those arrangements on its financial position. An entity is required to apply the
amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods
within those annual periods. The amendment should be applied retrospectively. The Company does not
believe that this guidance will have a material impact on its consolidated financial statements.
Comprehensive Income: In December 2011, the FASB issued amended guidance related to
Comprehensive Income. In order to defer only those changes in the June amendment (addressed
below) that relate to the presentation of reclassification adjustments, the FASB issued this amendment
to supersede certain pending paragraphs in the June amendment. The amendments are being made to
allow the FASB time to redeliberate whether to present on the face of the financial statements the
effects of reclassifications out of accumulated other comprehensive income on the components of net
income and other comprehensive income for all periods presented. While the FASB is considering the
operational concerns about the presentation requirements for reclassification adjustments and the needs
of financial statement users for additional information about reclassification adjustments, entities should
continue to report reclassifications out of accumulated other comprehensive income consistent with the
presentation requirements in effect before the June amendment. All other requirements are not
affected, including the requirement to report comprehensive income either in a single continuous
financial statement or in two separate but consecutive financial statements. Public entities should apply
these requirements for fiscal years, and interim periods within those years, beginning after
December 15, 2011. The adoption of this guidance did not have a material impact on the Company’s
consolidated financial statements.
Intangibles—Goodwill and Other: In September 2011, the FASB issued amended guidance related to
Intangibles—Goodwill and Other: Testing Goodwill for Impairment. The amendment is intended to
simplify how entities test goodwill for impairment. The amendment permits an entity to first assess
qualitative factors to determine whether it is ‘‘more likely than not’’ that the fair value of a reporting
unit is less than its carrying amount as a basis for determining whether it is necessary to perform the
two-step goodwill impairment test. The more-likely-than-not threshold is defined as having a likelihood
of more than 50%. This amendment is effective for annual and interim goodwill impairment tests
performed for fiscal years beginning after December 15, 2011. The adoption of this guidance did not
have a material impact on the Company’s consolidated financial statements.
Comprehensive Income: In June 2011, the FASB issued amended guidance related to Comprehensive
Income. This amendment allows an entity the option to present the total of comprehensive income, the
components of net income, and the components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate but consecutive statements. In both
choices, an entity is required to present each component of net income along with total net income,
each component of other comprehensive income along with a total for other comprehensive income,
and a total amount for comprehensive income. The amendment eliminates the option to present the
components of other comprehensive income as part of the statement of equity. The amendments do
not change the items that must be reported in other comprehensive income or when an item of other
comprehensive income must be reclassified to net income. The amendment should be applied
F-24
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
1. Description of Business and Significant Accounting Policies (Continued)
retrospectively. The amendments are effective for fiscal years, and interim periods within those years,
beginning after December 15, 2011. The adoption of this guidance did not have a material impact on
the Company’s consolidated financial statements.
2. Income Per Common Share
The following table sets forth basic and diluted net income per common share and the basic weighted
average shares outstanding and diluted weighted average shares outstanding (in thousands, except per
share data):
Year ended December 31,
2012
2011
2010
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30,928
$127,987
$361,760
Income from continuing operations per common
share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.80
$
3.23
$
9.16
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.79
$
3.11
$
8.51
Basic weighted average shares outstanding . . . . . . . .
Dilutive effect of stock options, restricted stock
awards and units and convertible debt . . . . . . . . .
38,477
39,658
39,499
574
1,497
3,015
Diluted weighted average shares outstanding . . . . . .
39,051
41,155
42,514
Basic income per common share is computed using the basic weighted average number of common
shares outstanding during the period. Diluted income per common share is computed using the basic
weighted average number of common shares and common equivalent shares outstanding during the
period. Potentially dilutive securities attributable to outstanding stock options and restricted stock of
approximately 1.3 million, 0.7 million and 0.3 million common equivalent shares during the years ended
December 31, 2012, 2011 and 2010 were excluded from the calculation of diluted net income per share
because their inclusion would have been anti-dilutive.
During the second quarter of 2011 the entire outstanding principal balance of our convertible debt was
converted, with the principal amount paid in cash and the conversion premium paid in shares. The
convertible notes met the criteria for determining the effect of the assumed conversion using the
treasury stock method of accounting, since we had settled the principal amount of the notes in cash.
Using the treasury stock method, it was determined that the impact of the assumed conversion for the
years ended December 31, 2011 and 2010 had a dilutive effect of 0.6 million shares and 1.2 million
shares, respectively.
F-25
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
3. Discontinued Operations
CIGS Solar Systems Business
On July 28, 2011, we announced a plan to discontinue our CIGS solar systems business. The action,
which was completed on September 27, 2011 and impacted approximately 80 employees, was in
response to the dramatically reduced cost of mainstream solar technologies driven by significant
reductions in prices, large industry investment, a lower than expected end market acceptance for CIGS
technology and technical barriers in scaling CIGS. This business was previously included as part of our
LED & Solar segment.
The results of operations for the CIGS solar systems business have been recorded as discontinued
operations in the accompanying consolidated statements of income for all periods presented. During
the year ended December 31, 2011, total discontinued operations include pre-tax charges totaling
$69.8 million. These charges include an asset impairment charge totaling $6.2 million, a goodwill
write-off of $10.8 million, an inventory write-off totaling $27.0 million, charges to settle contracts
totaling $22.1 million, lease related charges totaling $1.4 million and personnel severance charges
totaling $2.3 million.
Metrology
On August 15, 2010, we signed a definitive agreement to sell our Metrology business to Bruker
comprising our entire Metrology reporting segment for $229.4 million. Accordingly, Metrology’s
operating results are accounted for as discontinued operations in determining the consolidated results
of operations. The sale transaction closed on October 7, 2010, except for assets located in China due to
local restrictions. Total proceeds, which included a working capital adjustment of $1 million, totaled
$230.4 million of which $7.2 million relates to the assets in China. As part of our agreement with
Bruker, $22.9 million of proceeds was held in escrow and was restricted from use for one year
following the closing date of the transaction to secure certain specified losses in the event of breaches
of representations, warranties and covenants we made in the stock purchase agreement and related
documents. The restriction relating to the escrowed proceeds was released on October 6, 2011. As part
of the sale we incurred transaction costs, which consisted of investment banking fees and legal fees,
totaling $5.2 million. During the fourth quarter of 2010, we recognized a pre-tax gain on disposal of
$156.3 million and a pre-tax deferred gain of $5.4 million related to the assets in China. We recognized
into income the pre-tax deferred gain of $5.4 million during the third quarter of 2012 related to the
completion of the sale of the assets in China to Bruker.
Discontinued operations for the year ended December 31, 2012 include the realization of the
$5.4 million 2010 deferred gain ($4.1 million net of taxes) relating to the net assets in China, which was
finalized during the third quarter of 2012, and a $1.4 million gain ($1.1 million net of taxes) on the sale
of assets of this discontinued segment that were previously held for sale and sold during the second
quarter of 2012.
F-26
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
3. Discontinued Operations (Continued)
The following is a summary of the net assets sold as of the closing date on October 7, 2010 (in
thousands):
October 7,
2010
Assets
Accounts receivable, net . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment at cost, net
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . .
.
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$21,866
26,431
13,408
7,419
5,485
Assets of discontinued segment held for sale . . . . . . . . . . . . . . . . . . . . . .
$74,609
Liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . .
$ 7,616
5,284
Liabilities of discontinued segment held for sale . . . . . . . . . . . . . . . . . . .
$12,900
Summary information related to discontinued operations is as follows (in thousands):
2012
Solar
Systems Metrology
Net sales . . . . . . . . . . . . . .
$—
$
—
Net (loss) income from
discontinued operations . .
$(62)
$4,461
Total
$
The year ended December 31,
2011
Solar
Solar
Systems Metrology
Total
Systems
— $
—
$
—
$
2010
Metrology
Total
— $ 2,339 $ 92,011 $94,350
$4,399 $(61,453) $(1,062) $(62,515) $(16,645) $101,229 $84,584
Liabilities of discontinued segment held for sale, totaling $5.4 million, as of December 31, 2011
consisted of the deferred gain related to the assets in China recognized in 2012.
4. Fair Value Measurements
We have categorized our assets and liabilities recorded at fair value based upon the fair value
hierarchy. The levels of fair value hierarchy are as follows:
• Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities
that we have the ability to access.
• Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly.
Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs
such as interest rates and yield curves that are observable at commonly quoted intervals.
• Level 3 inputs are unobservable and are typically based on our own assumptions, including situations
where there is little, if any, market activity.
F-27
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
4. Fair Value Measurements (Continued)
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value
hierarchy. In such cases, we categorize such assets or liabilities based on the lowest level input that is
significant to the fair value measurement in its entirety. Our assessment of the significance of a
particular input to the fair value measurement in its entirety requires judgment and considers factors
specific to the asset.
Both observable and unobservable inputs may be used to determine the fair value of positions that are
classified within the Level 3 category. As a result, the unrealized gains and losses for assets within the
Level 3 category presented below may include changes in fair value that were attributable to both
observable (e.g., changes in market interest rates) and unobservable (e.g., changes in historical company
data) inputs.
The major categories of assets and liabilities measured on a recurring basis, at fair value, as of
December 31, 2012 and 2011 are as follows (in millions):
Level 1
December 31, 2012
Level 2
Level 3
Treasury bills . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government agency securities . . . . . . . . . . . . . . .
$278.7
—
$ —
123.0
$—
—
$278.7
123.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$278.7
$123.0
$—
$401.7
Total
Level 1
December 31, 2011
Level 2
Level 3
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.
$90.2
—
—
—
$ —
114.8
169.8
0.2
$—
—
—
—
$ 90.2
114.8
169.8
0.2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$90.2
$284.8
$—
$375.0
Treasury bills . . . . . . . . . . . . . .
FDIC guaranteed corporate debt
Government agency securities . .
Money market instruments . . . .
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Total
The classification in the fair value table as of December 31, 2011 has been revised to conform to current period classifications
due to an immaterial error related to previously disclosed fair value hierarchy tables.
Highly liquid investments with maturities of three months or less when purchased may be classified as
cash equivalents. Such items may include liquid money market accounts, treasury bills, government
agency securities and corporate debt. The investments that are classified as cash equivalents are carried
at cost, which approximates fair value. Accordingly, no gains or losses (realized/unrealized) have been
incurred for cash equivalents. All investments classified as available-for-sale are recorded at fair value
within short-term investments in the Consolidated Balance Sheets.
In determining the fair value of its investments and levels, through a third-party service provider the
Company uses pricing information from pricing services that value securities based on quoted market
prices in active markets and matrix pricing. Matrix pricing is a mathematical valuation technique that
does not rely exclusively on quoted prices of specific investments, but on the investment’s relationship
to other benchmarked quoted securities. The Company has a challenge process in place for investment
valuations to facilitate identification and resolution of potentially erroneous prices. The Company
F-28
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
4. Fair Value Measurements (Continued)
reviews the information provided by the third-party service provider to record the fair value of its
portfolio.
Consistent with Level 1 measurement principles, Treasury bills are priced using active market prices of
identical securities. Consistent with Level 2 measurement principles, FDIC guaranteed corporate debt,
Government agency securities, and Money market instruments are priced with matrix pricing.
We measure certain assets for fair value on a non-recurring basis when there are indications of
impairment.
In 2012, we evaluated an asset in our Data Storage segment for impairment. We measured the assets
consistent with Level 3 measurement principals using an income approach based on a discounted cash
flow model. As a result of the evaluation we adjusted the carrying value of the asset carried in Other
assets from $1.4 million to $0.1 million with the $1.3 million adjustment recorded as impairment in
2012. In 2011, we evaluated certain tangible assets in our MBE reporting unit for impairment. We
measured the assets consistent with Level 3 measurement principals. As a result of the evaluation we
fully expensed $0.6 million related to the tangible assets as an impairment in 2011.
In the fourth quarter of 2012, management identified a change in the business climate for certain asset
groups which can be an indication of a potential impairment. We noted that our long-term forecast for
each of these asset groups, including growth assumptions, was lower than the prior year’s financial
projections of each group. As a result, management performed an asset recoverability test that included
the use of an undiscounted cash flow analysis. Based on the analysis performed, no indications of
impairment were noted as the undiscounted cash flows of each asset group were in excess of carrying
value.
5. Business Combinations
On April 4, 2011, we purchased a privately-held company which supplies certain components to one of
our businesses for $28.3 million in cash. As a result of this purchase, we acquired $16.4 million of
definite-lived intangibles, of which $13.6 million related to core technology, and $14.7 million of
goodwill. The financial results of this acquisition are included in our LED & Solar segment as of the
acquisition date. We determined that this acquisition does not constitute a material business
combination and therefore we have not included pro forma financial information in this report.
F-29
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
6. Balance Sheet Information
Short-Term Investments
Available-for-sale securities consist of the following (in thousands):
Amortized
Cost
December 31, 2012
Gains in
Losses in
Accumulated
Accumulated
Other
Other
Comprehensive Comprehensive
Income
Income
Estimated
Fair Value
Treasury bills . . . . . . . . . . . . . . .
Government agency securities . .
$184,102
8,056
$76
—
$—
—
$184,178
8,056
Total available-for-sale
securities . . . . . . . . . . . . . .
$192,158
$76
$—
$192,234
During the year ended December 31, 2012, available-for-sale securities were sold for total proceeds of
$244.9 million. The gross realized gains on these sales were minimal for the year ended December 31,
2012. For purpose of determining gross realized gains, the cost of securities sold is based on specific
identification. The change in the net unrealized holding loss on available-for-sale securities amounted
to $0.1 million for the year ended December 31, 2012, and has been included in accumulated other
comprehensive income. The tax impact on the unrealized gains, which is excluded from the table above,
was less than $0.1 million.
Amortized
Cost
December 31, 2011
Gains in
Losses in
Accumulated
Accumulated
Other
Other
Comprehensive Comprehensive
Income
Income
Estimated
Fair Value
Treasury bills . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government agency securities . . . . . . . . . . . . . . . .
FDIC guaranteed corporate debt . . . . . . . . . . . . .
$ 70,147
88,585
114,641
$ 46
62
124
$ (1)
(6)
(7)
$ 70,192
88,641
114,758
Total available-for-sale securities . . . . . . . . . . . .
$273,373
$232
$(14)
$273,591
During the year ended December 31, 2011, available-for-sale securities were sold for total proceeds of
$707.6 million. The gross realized gains on these sales were $0.4 million for the year ended
December 31, 2011. For purpose of determining gross realized gains, the cost of securities sold is based
on specific identification. The change in the net unrealized holding gain on available-for-sale securities
amounted to $0.2 million for the year ended December 31, 2011, and has been included in accumulated
other comprehensive income. The tax impact on the unrealized gains, which was excluded from the
table above, was $0.1 million.
As of December 31, 2012 we did not hold any short-term investments that were in a loss position. As
of December 31, 2011 we had $33.5 million in short-term investments that had an aggregate unrealized
fair value loss of less than $0.2 million none of which had been in an unrealized loss position for
12 months or longer. For investments that were in an unrealized loss position, we held the securities
through maturity.
F-30
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
6. Balance Sheet Information (Continued)
Contractual maturities of available-for-sale debt securities as of December 31, 2012 are as follows (in
thousands):
Estimated
Fair Value
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due in 1 - 2 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$120,621
71,613
Total investments in debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
$192,234
Actual maturities may differ from contractual maturities because some borrowers have the right to call
or prepay obligations with or without call or prepayment penalties.
Restricted Cash
As of December 31, 2012 and 2011, restricted cash consisted of $2.0 million and $0.6 million,
respectively, which serves as collateral for bank guarantees that provide financial assurance that the
Company will fulfill certain customer obligations. This cash is held in custody by the issuing bank, and
is restricted as to withdrawal or use while the related bank guarantees are outstanding.
Accounts Receivable, Net
Accounts receivable are shown net of the allowance for doubtful accounts of $0.5 million as of
December 31, 2012 and 2011.
Inventories (in thousands):
December 31,
2012
2011
Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-31
$36,523
13,363
9,921
$ 57,169
20,118
36,147
$59,807
$113,434
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
6. Balance Sheet Information (Continued)
Property, Plant and Equipment (in thousands):
December 31,
2012
2011
Land . . . . . . . . . . . . . . . .
Building and improvements
Machinery and equipment .
Leasehold improvements . .
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Estimated
Useful Lives
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$ 12,535
49,498
110,150
5,677
$ 12,535
34,589
102,241
6,025
Gross property, plant and equipment at cost . . . . . . . . . . . . . . . .
Less: accumulated depreciation and amortization . . . . . . . . . . . .
177,860
79,558
155,390
69,323
Net property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . .
$ 98,302
$ 86,067
10 - 40 years
3 - 10 years
3 - 7 years
For the years ended December 31, 2012, 2011 and 2010, depreciation expense was $11.3 million,
$8.2 million and $7.1 million, respectively.
Goodwill and Indefinite-Lived Intangible Assets
In accordance with the relevant accounting guidance related to goodwill and other intangible assets, we
conducted our annual impairment test of goodwill and indefinite-lived intangible assets during the
fourth quarters of 2012 and 2011, using October 1st as our measurement date, and utilizing a
discounted future cash flow approach as described in Note 1. This was consistent with the approach
used in previous years. Based upon the results of such assessments, we determined that no goodwill
and indefinite-lived intangible asset impairment existed as of October 1, 2012 and 2011, respectively.
Changes in our goodwill are as follows (in thousands):
December 31,
2012
2011
Beginning Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-off (see Note 3. Discontinued Operations) . . . . . . . . . . . .
Acquisition (see Note 5. Business Combinations) . . . . . . . . . . . .
$55,828
—
—
$ 52,003
(10,836)
14,661
Ending Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$55,828
$ 55,828
As of December 31, 2012 and 2011, we had $2.9 million of indefinite-lived intangible assets consisting
of trademarks and tradenames, which are included in the accompanying Consolidated Balance Sheets in
the caption intangible assets, net.
F-32
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
6. Balance Sheet Information (Continued)
Intangible Assets
(in thousands)
December 31, 2012
Other
Total
Purchased
intangible
intangible
technology
assets
assets
Gross intangible assets . . . . . . . . .
Less accumulated amortization . . .
$109,248 $ 19,635 $ 128,883 $109,248 $ 19,635 $ 128,883
(93,436) (14,473) (107,909) (89,620) (13,381) (103,001)
Intangible assets, net . . . . . . . . . .
$ 15,812
$ 5,162
December 31, 2011
Other
Total
Purchased
intangible
intangible
technology
assets
assets
$ 20,974
$ 19,628
$ 6,254
$ 25,882
The estimated aggregate amortization expense for intangible assets with definite useful lives for each of
the next five fiscal years is as follows (in thousands):
2013 .
2014 .
2015 .
2016 .
2017 .
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$3,556
2,919
2,752
2,530
1,544
In accordance with the relevant accounting guidance related to the impairment or disposal of long-lived
assets, we performed an analysis as of December 31, 2012 and 2011 of our definite-lived intangible and
long-lived assets.
As a result of the delay in filing this report and because our last annual impairment test was performed
as of October 1, 2012, we were required to evaluate the impact of events and circumstances occurring
through the date of the filing of this report. We considered several factors including our current year
financial projections, changes in industry or market conditions, political factors, legal factors, regulatory
factors, whether triggering events exist, and performed other analyses to assess whether our goodwill
and/or long-lived assets are impaired. Based on our evaluation of the foregoing considerations, we
concluded that no impairment exists through the date of this filing.
Cost Method Investment
On September 28, 2010, Veeco completed a $3 million investment in a rapidly developing organic light
emitting diode (also known as OLED) equipment company (the ‘‘Investment’’). Veeco invested an
additional $10.3 million and $1.2 million in the Investment during 2012 and 2011, respectively. As of
December 31, 2012, we have a 15.3% ownership of the preferred shares, and effectively hold a 12.0%
ownership interest of the total company. Since we do not exert significant influence on the Investment,
this investment is treated under the cost method in accordance with applicable accounting guidance.
The fair value of this investment is not estimated because there are no identified events or changes in
circumstances that may have a significant adverse effect on the fair value of the investment and the
investment does not meet the definition of a publicly traded company. This investment is recorded in
other assets in our Consolidated Balance Sheets as of December 31, 2012 and 2011. In 2013, Veeco
invested an additional $1.6 million in the Investment.
F-33
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
6. Balance Sheet Information (Continued)
Accrued Expenses and Other Current Liabilities
December 31,
2012
2011
(in thousands)
Payroll and related benefits
Sales, use and other taxes .
Customer deposits . . . . . .
Warranty . . . . . . . . . . . . .
Restructuring liability . . . .
Other . . . . . . . . . . . . . . . .
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$14,581
6,480
32,719
4,942
1,875
13,663
$ 19,017
6,315
57,075
8,731
956
14,532
$74,260
$106,626
Accrued Warranty
Typically, we provide our customers a one year manufacturer’s warranty from the date of final
acceptance on the products they purchase from us. We estimate the costs that may be incurred under
the warranty we provide for our products and recognize a liability in the amount of such costs at the
time the related revenue is recognized. Factors that affect our warranty liability include product failure
rates, material usage and labor costs incurred in correcting product failures during the warranty period.
Changes in our warranty liability during the year are as follows (in thousands):
December 31,
2012
2011
Balance as of the beginning of year . .
Warranties issued during the year . . . .
Settlements made during the year . . .
Changes in estimate during the period
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Balance as of the end of year . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,731 $ 8,266
3,563
7,366
(7,060) (8,462)
(292)
1,561
$ 4,942
$ 8,731
In the current year’s presentation we no longer include certain accrued installation costs in the accrued
warranty balance; therefore, in order to conform the balance to current year presentation, we have
reclassified $1.047 million and $0.972 million in 2012 and 2011, respectively, of the beginning balance
of accrued warranty to accrued installation which, along with accrued warranty, is also a component of
accrued expenses and other current liabilities.
F-34
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
6. Balance Sheet Information (Continued)
Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income are (in thousands):
December 31, 2012
Gross
Taxes
Net
Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . .
Defined benefit pension plan . . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) on available for sale securities . . . .
$ 7,040 $(339) $6,701
(1,285)
510
(775)
76
(29)
47
Accumulated other comprehensive income . . . . . . . . . . . .
$ 5,831
$ 142
December 31, 2011
Gross
Taxes
$5,973
Net
Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . .
Defined benefit pension plan . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) on available for sale securities . . .
$ 8,111 $(1,022) $7,089
(1,069)
431
(638)
218
(79)
139
Accumulated other comprehensive income . . . . . . . . . .
$ 7,260
$ (670) $6,590
7. Debt
Long-Term Debt
Long-term debt as of December 31, 2012, consists of a mortgage note payable, which is secured by
certain land and buildings with carrying amounts aggregating approximately $4.8 million and
$5.0 million as of December 31, 2012 and December 31, 2011, respectively. The mortgage note payable
($2.4 million as of December 31, 2012 and $2.7 million as of December 31, 2011) bears interest at an
annual rate of 7.91%, with the final payment due on January 1, 2020. Since there is no readily
comparable market for our notes (fair value hierarchy Level 3, please see Note 4. Fair Value
Measurements), we computed the fair value of the note using a discounted cash flow model, adjusted
for current interest rates and our current risk profile. We estimate the fair market value of this note as
of December 31, 2012 and 2011 was approximately $2.6 million and $2.9 million, respectively.
Maturity of Long-Term Debt
Long-term debt matures as follows (in thousands):
2013 . . . . .
2014 . . . . .
2015 . . . . .
2016 . . . . .
2017 . . . . .
Thereafter
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$ 268
290
314
340
368
826
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,406
268
$2,138
F-35
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
7. Debt (Continued)
Convertible Notes
Our convertible notes were initially convertible into 36.7277 shares of common stock per $1,000
principal amount of notes (equivalent to a conversion price of $27.23 per share or a premium of 38%
over the closing market price for Veeco’s common stock on April 16, 2007). We paid interest on these
notes on April 15 and October 15 of each year. The notes were unsecured and were effectively
subordinated to all of our senior and secured indebtedness and to all indebtedness and other liabilities
of our subsidiaries.
During the first quarter of 2011, at the option of the holders, $7.5 million of notes were tendered for
conversion at a price of $45.95 per share in a net share settlement. We paid the principal amount of
$7.5 million in cash and issued 111,318 shares of our common stock. We recorded a loss on
extinguishment totaling $0.3 million related to these transactions.
During the second quarter of 2011, we issued a notice of redemption on the remaining outstanding
principal balance of notes outstanding. As a result, at the option of the holders, the notes were
tendered for conversion at a price of $50.59 per share, calculated as defined in the indenture relating
to the notes, in a net share settlement. As a result, we paid the principal amount of $98.1 million in
cash and issued 1,660,095 shares of our common stock. We recorded a loss on extinguishment totaling
$3.0 million related to these transactions.
Certain accounting guidance requires a portion of convertible debt to be allocated to equity. This
guidance requires issuers of convertible debt that can be settled in cash to separately account for
(i.e., bifurcate) a portion of the debt associated with the conversion feature and reclassify this portion
to equity. The liability portion, which represents the fair value of the debt without the conversion
feature, is accreted to its face value over the life of the debt using the effective interest method by
amortizing the discount between the face amount and the fair value. The amortization is recorded as
interest expense. Our convertible notes were subject to this accounting guidance. This additional
interest expense did not require the use of cash.
The components of interest expense recorded on the notes were as follows (in thousands):
For the year ended
December 31,
2011
2010
Contractual interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion of the discount on the notes . . . . . . . . . . . . . . . . . . . . .
$2,025
1,260
$4,355
3,058
Total interest expense on the notes . . . . . . . . . . . . . . . . . . . . . . . .
$3,285
$7,413
Effective interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.7%
7.0%
8. Equity Compensation Plans and Equity
Stock Option and Restricted Stock Plans
We have several stock option and restricted stock plans. On April 1, 2010, the Board of Directors of
the Company, and on May 14, 2010, our shareholders, approved the 2010 Stock Incentive Plan (the
‘‘2010 Plan’’). The 2010 Plan replaced the 2000 Stock Incentive Plan, as amended (the ‘‘2000 Plan’’), as
F-36
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
8. Equity Compensation Plans and Equity (Continued)
the Company’s active stock plan. The Company’s employees, directors and consultants are eligible to
receive awards under the 2010 Plan. The 2010 Plan permits the granting of a variety of awards,
including both non-qualified and incentive stock options, share appreciation rights, restricted shares,
restricted share units and dividend equivalent rights. The Company is authorized to issue up to
3,500,000 shares under the 2010 Plan. Option awards are generally granted with an exercise price equal
to the closing price of the Company’s stock on the trading day prior to the date of grant; those option
awards generally vest over a 3 year period and have a 7 or 10-year term. Restricted share awards
generally vest over 1-5 years. Certain option and share awards provide for accelerated vesting if there is
a change in control, as defined in the 2010 Plan. As of December 31, 2012, there are 1,448,132 options
outstanding under this plan.
The 2000 Plan was approved by the Board of Directors and shareholders in May 2000. The 2000 Plan
provides for the grant to officers and key employees of stock awards, either in the form of options to
purchase shares of our common stock or restricted stock awards. Stock awards granted pursuant to the
2000 Plan expire after seven years and generally vest over a two-year to five-year period following the
grant date. In addition, the 2000 Plan provides for automatic annual grants of restricted stock to each
member of our Board of Directors who is not an employee. As of December 31, 2012, there are
873,522 options outstanding under this plan.
Equity-Based Compensation Expense, Stock Option and Restricted Stock Activity
Equity-based compensation cost is measured at the grant date, based on the fair value of the award,
and is recognized as expense over the employee requisite service period. We recorded equity
compensation expense of $14.3 million, $12.8 million and $8.8 million for the years ended
December 31, 2012, 2011 and 2010, respectively. We did not capitalize any equity compensation in the
years ended December 31, 2012, 2011, and 2010.
During the year ended December 31, 2011, we discontinued our CIGS solar systems business and as a
result the equity-based compensation expense related to each CIGS solar systems business employee
has been classified as discontinued operations in determining the consolidated results of operations for
the years ended December 31, 2011 and 2010. For the years ended December 31, 2011 and 2010
discontinued operations included compensation expense of $0.7 million and $0.9 million, respectively.
As a result of the sale of our Metrology segment to Bruker, equity-based compensation expense related
to Metrology employees has been classified as discontinued operations in determining the consolidated
results of operations for the year ended December 31, 2010. For the year ended December 31, 2010,
discontinued operations included compensation expense of $7.7 million that related to the acceleration
of equity awards from employees that were terminated as a result of the sale of our Metrology segment
to Bruker.
As of December 31, 2012, the total unrecognized compensation cost related to nonvested stock awards
and option awards expected to vest is $17.2 million and $13.1 million, respectively, and the related
weighted average period over which it is expected that such unrecognized compensation costs will be
recognized is approximately 2.8 years and 2.0 years for the nonvested stock awards and for option
awards, respectively.
F-37
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
8. Equity Compensation Plans and Equity (Continued)
The fair value of each option granted during the years ended December 31, 2012, 2011 and 2010, was
estimated on the date of grant using the Black-Scholes option-pricing model with the following
assumptions:
For the year ended
December 31,
2012
2011
2010
Weighted-average expected stock-price volatility
Weighted-average expected option life . . . . . . .
Average risk-free interest rate . . . . . . . . . . . . .
Average dividend yield . . . . . . . . . . . . . . . . . . .
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59%
55%
62%
5 years 4 years 5 years
0.70%
1.40%
1.92%
0%
0%
0%
A summary of our restricted stock awards including restricted stock units as of December 31, 2012 is
presented below:
Nonvested as of December 31, 2011 . .
Granted . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . .
Forfeited (including cancelled awards)
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Nonvested as of December 31, 2012 . . . . . . . . . . . . . . . . . . . . . .
Shares
(000’s)
WeightedAverage
Grant-Date
Fair Value
618
324
(167)
(82)
$33.61
32.62
20.60
34.98
693
$36.11
During the year ended December 31, 2012, we granted 323,766 shares of restricted common stock and
restricted stock units to key employees, which generally vest over a four year period. Included in this
grant were 15,294 shares of restricted common stock granted to the non-employee members of the
Board of Directors, which vest over the lesser of one year or at the time of the next annual meeting.
The vested shares include the impact of 53,399 shares of restricted stock which were cancelled in 2012
due to employees electing to receive fewer shares in lieu of paying withholding taxes. The total grant
date fair value of shares that vested during the years ended December 31, 2012, 2011 and 2010 was
$5.4 million, $9.7 million and $13.6 million, respectively.
F-38
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
8. Equity Compensation Plans and Equity (Continued)
A summary of our stock option plans as of and for the year ended December 31, 2012 is presented
below:
Aggregate
Intrinsic
Value (000’s)
WeightedAverage
Remaining
Contractual
Life
(in years)
$28.63
$13,149
6.4
$22.63
$12,948
4.5
Shares
(000’s)
WeightedAverage
Exercise
Price
2,106
704
(351)
(137)
$25.58
32.55
15.39
35.88
Outstanding as of December 31, 2012 . . . . . . . . . . . . . . . .
2,322
Options exercisable as of December 31, 2012 . . . . . . . . . . .
1,282
Outstanding as of December 31, 2011 .
Granted . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . .
Forfeited (including cancelled options)
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The weighted-average grant date fair value of stock options granted for the years ended December 31,
2012, 2011 and 2010 was $15.56, $21.90 and $18.41 per option, respectively. The total intrinsic value of
stock options exercised during the years ended December 31, 2012, 2011 and 2010 was $6.8 million,
$22.8 million and $53.1 million, respectively.
The following table summarizes information about stock options outstanding as of December 31, 2012:
Options Outstanding
Number
Weighted-Average
Outstanding at
Remaining
December 31,
Contractual Life
2012 (000s)
(in years)
Range of Exercise Prices
$8.82
17.48
28.60
44.09
-
16.37
26.69
42.96
51.70
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WeightedAverage
Exercise
Price
Options Exercisable
Number
WeightedExercisable at
Average
December 31,
Exercise
2012 (000s)
Price
522
352
1,155
293
3.4
2.9
8.4
8.4
$11.05
19.66
33.64
50.91
522
320
339
101
$11.05
19.16
35.29
50.79
2,322
6.4
$28.63
1,282
$22.63
Shares Reserved for Future Issuance
As of December 31, 2012, we have 3,358,032 shares reserved for future issuance upon exercise of stock
options and grants of restricted stock.
Preferred Stock
Our Board of Directors has authority under our Certificate of Incorporation to issue shares of
preferred stock with voting and economic rights to be determined by the Board of Directors.
F-39
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
8. Equity Compensation Plans and Equity (Continued)
Treasury Stock
On August 24, 2010, our Board of Directors authorized the repurchase of up to $200 million of our
common stock. All funds for this repurchase program were exhausted as of August 19, 2011.
Repurchases were made from time to time on the open market in accordance with applicable federal
securities laws. During 2011, we purchased 4,160,228 shares for $162 million (including transaction
costs) under the program at an average cost of $38.96 per share. During 2010, we purchased 1,118,600
shares for $38 million (including transaction costs) under the program at an average cost of $34.06 per
share. This stock repurchase is included as treasury stock in the Consolidated Balance Sheet as of
December 31, 2011. During the year ended December 31, 2012, we cancelled and retired the 5,278,828
shares of treasury stock we purchased under this repurchase program. As a result of this transaction,
we recorded a reduction in treasury stock of $200.2 million and a corresponding reduction of
$200.1 million and $0.1 million in retained earnings and common stock, respectively.
9. Income Taxes
Our income from continuing operations before income taxes in the accompanying Consolidated
Statements of Income consists of (in thousands):
Year ended December 31,
2012
2011
2010
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,811
32,375
$230,204
41,882
$260,268
36,413
$38,186
$272,086
$296,681
Significant components of the provision for income taxes from continuing operations are presented
below (in thousands):
Year ended December 31,
2012
2011
2010
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current provision for income taxes . . . . . . .
$ 2,515 $59,921
7,576
10,714
(317)
805
$ 42,324
7,720
5,215
9,774
71,440
55,259
(482)
727
1,638
10,454
(1,073)
763
(32,033)
239
(3,960)
Total deferred provision (benefit) for income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,883
10,144
(35,754)
Total provision for income taxes . . . . . . . . . . . . . . . .
$11,657
$81,584
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-40
$ 19,505
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
9. Income Taxes (Continued)
The following is a reconciliation of the income tax provision computed using the Federal statutory rate
to our actual income tax provision (in thousands):
Year ended December 31,
2012
2011
2010
Income tax provision at U.S. statutory rates . . . . .
State income tax (benefit) expense (net of federal
impact) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible expenses . . . . . . . . . . . . . . . . . . .
Domestic production activities deduction . . . . . . .
Nondeductible compensation . . . . . . . . . . . . . . .
Research and development tax credit . . . . . . . . .
Net change in valuation allowance . . . . . . . . . . .
Change in accrual for unrecognized tax benefits . .
Foreign tax rate differential . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Total provision for income taxes . . . . . . . . . . . . . . . .
F-41
$13,366
(89)
622
(489)
205
(3,013)
2,943
533
(2,387)
(34)
$11,657
$95,231
1,616
(749)
(4,581)
841
(4,675)
121
824
(5,225)
(1,819)
$81,584
$103,838
6,379
333
(6,365)
2,840
(1,823)
(83,079)
(1,076)
(5,280)
3,738
$ 19,505
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
9. Income Taxes (Continued)
During the fourth quarter of 2012, the Company determined that it may not meet the criteria required
to receive a certain incentive tax rate pursuant to a negotiated tax holiday in one foreign jurisdiction.
Although the Company is continuing to negotiate the criteria for the incentive, for financial reporting
purposes the Company has recorded an additional tax provision of $4.0 million which represents the
cumulative effect of calculating the tax provision using the incentive tax rate as compared to the foreign
country’s statutory rate. As such amount is not expected to be paid within twelve months, the Company
has recorded the $4.0 million as a long term taxes payable. If the Company successfully renegotiates
the incentive criteria, this additional tax provision could be reversed as a future benefit in the period in
which the successful negotiations are finalized.
During 2012, the Company recorded an income tax expense of $1.9 million relating to discontinued
operations compared to the $29.4 million income tax benefit from discontinued operations in the prior
year which was reported in accordance with the intraperiod tax allocation provisions. In addition, the
Company recorded a current tax benefit of $2.1 million related to equity-based compensation which
was a credit to additional paid-in capital compared to $10.4 million tax benefit recorded in the prior
year.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes.
Significant components of our deferred tax assets and liabilities are as follows (in thousands):
December 31,
2012
2011
Deferred tax assets:
Inventory valuation . . . . . . . . . . . . . . . . . .
Domestic net operating loss carry forwards .
Tax credit carry forwards . . . . . . . . . . . . . .
Foreign net operating loss carry forwards . .
Warranty and installation accruals . . . . . . .
Equity compensation . . . . . . . . . . . . . . . . .
Other accruals . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,386
1,144
4,145
—
2,174
9,114
3,270
760
$ 5,468
1,082
3,015
89
3,044
5,821
2,373
1,636
26,993
(4,708)
22,528
(1,765)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,285
20,763
Deferred tax liabilities:
Purchased intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Undistributed earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,973
1,095
7,014
9,818
974
4,115
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . .
18,082
14,907
Net deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,203
$ 5,856
F-42
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
9. Income Taxes (Continued)
A provision has not been made as of December 31, 2012 for U.S. or additional foreign withholding
taxes on approximately $96.4 million of undistributed earnings of our foreign subsidiaries because it is
the present intention of management to permanently reinvest the undistributed earnings of our foreign
subsidiaries in China, South Korea, Japan, Malaysia, Singapore and Taiwan. As it is our intention to
reinvest those earnings permanently, it is not practicable to estimate the amount of tax that might be
payable if they were remitted. We have provided deferred income taxes and future withholding taxes on
the earnings that we anticipate will be remitted.
Our valuation allowance of approximately $4.7 million as of December 31, 2012 increased by
approximately $2.9 million during the year then ended and relates primarily to state and local tax
attributes for which we could not conclude were realizable on a more-likely-than-not basis.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows
(in thousands):
December 31,
2012
2011
Beginning balance as of December 31 . . . . . . . . . . . . . . .
Additions for tax positions related to current year . . . .
Reductions for tax positions related to current year . . .
Additions for tax positions related to prior years . . . . .
Reductions for tax positions related to prior years . . . .
Reductions due to the lapse of the applicable statute of
limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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.......
.......
Ending balance as of December 31 . . . . . . . . . . . . . . . . . . . . . . . .
$4,748 $3,660
435
1,069
—
—
742
1,209
(59)
(422)
(48)
—
$5,818
(586)
(182)
$4,748
The Company does not anticipate that its uncertain tax position will change significantly within the next
twelve months.
Of the amounts reflected in the table above as of December 31, 2012, the entire amount if recognized
would reduce our effective tax rate. It is our policy to recognize interest and penalties related to
income tax matters in income tax expense. The total accrual for interest and penalties related to
unrecognized tax benefits was approximately $0.5 million and $0.2 million as of December 31, 2012 and
2011, respectively.
We or one of our subsidiaries file income tax returns in the U.S. federal jurisdiction and various state,
local and foreign jurisdictions. All material federal income tax matters have been concluded for years
through 2006 subject to subsequent utilization of net operating losses generated in such years. Our
2010 federal tax return is currently under examination. All material state and local income tax matters
have been reviewed through 2008 with two state jurisdictions currently under examination for open tax
years between 2007 and 2010. The majority of our foreign jurisdictions have been reviewed through
2009. Principally all our foreign jurisdictions remain open with respect to the 2011 and 2012 tax years.
F-43
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
10. Commitments and Contingencies and Other Matters
Restructuring and Other Charges
During 2011 and 2012, in response to challenging business conditions, we initiated activities to reduce
and contain spending, including reducing our workforce, consultants and discretionary expenses.
In conjunction with these activities, we recognized restructuring charges (credits) of approximately
$3.8 million, $1.3 million and $(0.2) million during the years ended December 31, 2012, 2011 and 2010,
respectively. During the years ended December 31, 2012 and 2011, we also recorded inventory
write-offs of $1.0 million related to a discontinued product line in our Data Storage segment and
$0.8 million related to a discontinued product line in our LED & Solar segment, respectively. These
inventory write offs are included in cost of sales in the accompanying Consolidated Statements of
Income.
Restructuring expense for the years ended December 31, 2012, 2011 and 2010 are as follows
(in thousands):
Year ended December 31,
2012
2011
2010
Personnel severance and related costs . . . . . . . . . . . . . . . .
Equity compensation and related costs . . . . . . . . . . . . . . .
Lease-related and other severance costs (credits) . . . . . . . .
$3,040
414
359
$1,288
—
—
$ —
—
(179)
$3,813
$1,288
$(179)
Personnel Severance Costs
During 2012, we recorded $3.0 million in personnel severance and related costs resulting from a
headcount reduction of 52 employees. During 2011, we recorded $1.3 million in personnel severance
and related costs related to a companywide reorganization resulting in a headcount reduction of
65 employees. These reductions in workforce included executives, management, administration, sales
and service personnel and manufacturing employees’ companywide.
Lease-Related and Other Severance Costs (Credits)
During 2012, we recorded $0.4 million in other associated costs resulting from a headcount reduction
of 52 employees. These charges primarily consist of job placement services, consulting and relocation
expenses, as well as duplicate wages incurred during the transition period.
During 2010, we had a change in estimate relating to one of our leased Data Storage facilities. As a
result, we incurred a restructuring credit of $0.2 million, consisting primarily of the remaining lease
payment obligations and estimated property taxes for a portion of the facility we will occupy, offset by
a reduction in expected sublease income.
F-44
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
10. Commitments and Contingencies and Other Matters (Continued)
The following is a reconciliation of the liability for the 2012, 2011 and 2010 restructuring charges
through December 31, 2012 (in thousands):
LED & Solar
Data Storage
Unallocated
Corporate
Total
Balance as of January 1, 2010 . . . . . . . . . . . . . . . . . .
Lease-related and other credits 2010 . . . . . . . . . . . . . .
$ 196
—
$ 486
(87)
$ 1,597
—
$ 2,279
(87)
Total credited to accrual 2010 . . . . . . . . . . . . . . . . . .
—
(87)
—
(87)
Personnel severance and related costs 2011 . . . . . . . . .
672
51
311
1,034
Total charged to accrual 2011 . . . . . . . . . . . . . . . . . .
672
51
311
1,034
Personnel severance and related costs 2012 . . . . . . . . .
874
1,684
135
2,693
Total charged to accrual 2012 . . . . . . . . . . . . . . . . . .
874
1,684
135
2,693
Short-term/long-term
Short-term/long-term
Cash payments 2010
Cash payments 2011
Cash payments 2012
reclassification
reclassification
...........
...........
...........
2010
2011
....
....
....
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—
—
(196)
(138)
(960)
123
58
(344)
(159)
(504)
536
—
(1,597)
(553)
(310)
659
58
(2,137)
(850)
(1,774)
Balance as of December 31, 2012 . . . . . . . . . . . . . . . .
$ 448
$1,308
$
119
Long-term liability
Balance as of January 1, 2010 . . . . . . . .
Lease-related and other credits 2010 . . . .
Short-term/long-term reclassification 2010
Short-term/long-term reclassification 2011
.
.
.
.
$ —
—
—
—
$ 229
(48)
(123)
(58)
$
536
—
(536)
—
$
765
(48)
(659)
(58)
Balance as of December 31, 2011 . . . . . . . . . . . . . . . .
$ —
$
$
—
$
—
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—
$ 1,875
Asset Impairment Charges
During 2012, we recorded an asset impairment charge of $1.3 million related to a particular asset in
our Data Storage segment. During 2011, we recorded a $0.6 million asset impairment charge for
property, plant and equipment related to the discontinuance of a certain product line in our LED &
Solar segment.
F-45
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
10. Commitments and Contingencies and Other Matters (Continued)
Minimum Lease Commitments
Minimum lease commitments as of December 31, 2012 for property and equipment under operating
lease agreements (exclusive of renewal options) are payable as follows (in thousands):
2013 . . . . .
2014 . . . . .
2015 . . . . .
2016 . . . . .
2017 . . . . .
Thereafter
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$3,491
2,128
1,063
588
540
93
$7,903
Rent charged to operations amounted to $3.5 million, $2.7 million and $1.7 million in 2012, 2011 and
2010, respectively. In addition, we are obligated under such leases for certain other expenses, including
real estate taxes and insurance.
Environmental Remediation
Under certain circumstances, we could have been obligated to pay up to $250,000 in connection with
the implementation of a comprehensive plan of environmental remediation at our Plainview, New York
facility. We are indemnified by the former owner for any liabilities we may incur in excess of $250,000
with respect to any such remediation. No comprehensive plan has been required to date. Even without
consideration of such indemnification, we did not believe that any material loss or expense was
probable in connection with any remediation plan that may be proposed. We revaluated this exposure
and concluded that there is no longer any potential exposure from this matter.
We are aware that petroleum hydrocarbon contamination has been detected in the soil at the site of a
facility formerly leased by us in Santa Barbara, California. We have been indemnified for any liabilities
we may incur which arise from environmental contamination at the site. Even without consideration of
such indemnification, we do not believe that any material loss or expense is probable in connection
with any such liabilities.
The former owner of the land and building in Santa Barbara, California in which our former Metrology
operations were located, which business (sold to Bruker on October 7, 2010), has disclosed that there
are hazardous substances present in the ground under the building. Management believes that the
comprehensive indemnification clause that was part of the purchase contract relating to the purchase of
such land provides adequate protection against any environmental issues that may arise. We have
provided Bruker indemnification as part of the sale.
Litigation
Veeco and certain other parties were named as defendants in a lawsuit filed on April 25, 2013 in the
Superior Court of California, County of Sonoma. The plaintiff in the lawsuit, Patrick Colbus, seeks
unspecified damages and asserts claims that he suffered burns and other injuries while he was cleaning
a molecular beam epitaxy system alleged to have been manufactured by Veeco. The lawsuit alleges,
F-46
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
10. Commitments and Contingencies and Other Matters (Continued)
among other things, that the molecular beam epitaxy system was defective and that Veeco failed to
adequately warn of the potential risks of the system. Although Veeco believes this lawsuit is without
merit and intends to defend vigorously against the claims, and although Veeco maintains insurance
which may apply to this matter, the lawsuit could result in substantial costs, divert management’s
attention and resources from our operations and negatively affect our public image and reputation.
Because the Company believes that this potential loss is not probable or estimable, it has not recorded
any reserves related to this legal matter.
We are involved in various other legal proceedings arising in the normal course of our business. We do
not believe that the ultimate resolution of these matters will have a material adverse effect on our
consolidated financial position, results of operations or cash flows.
Concentrations of Credit Risk
Our business depends in large part upon the capital expenditures of our top ten customers, which
accounted for 77% and 79% of total accounts receivable as of December 31, 2012 and 2011,
respectively. Of such, LED and data storage customers accounted for approximately 56% and 21%, and
58% and 19%, respectively, of total accounts receivable as of December 31, 2012 and 2011.
Customers who accounted for more than 10% of our aggregate accounts receivable or net sales are as
follows:
Customer
Customer
Customer
Customer
Customer
Customer
Customer
*
Accounts
Receivable
December 31,
2012
2011
Segment
A
B.
C.
D
E.
F.
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Data
LED
LED
LED
LED
LED
Storage
and Solar
and Solar
and Solar
and Solar
and Solar
16%
16%
*
*
*
*
*
*
31%
*
*
*
Less than 10% of aggregate accounts receivable or net sales.
F-47
Net Sales for the
year ended
December 31,
2012
2011
2010
14%
*
*
*
*
*
*
*
11%
12%
*
*
*
*
*
12%
17%
12%
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
10. Commitments and Contingencies and Other Matters (Continued)
We manufacture and sell our products to companies in different geographic locations. In certain
instances, we require deposits for a portion of the sales price in advance of shipment. We perform
periodic credit evaluations of our customers’ financial condition and, where appropriate, require that
letters of credit be provided on certain foreign sales arrangements. Receivables generally are due within
30-90 days, other than receivables generated from customers in Japan where payment terms generally
range from 60-150 days. Our net accounts receivable balance is concentrated in the following
geographic locations (in thousands):
December 31,
2012
2011
China . . . . . . . . . . . . . . . . . . .
Singapore . . . . . . . . . . . . . . . .
Taiwan . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . .
Americas . . . . . . . . . . . . . . . . .
Europe, Middle East and Africa
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$28,132
7,266
6,390
3,853
45,641
13,917
3,611
$63,169
$59,154
15,338
1,281
4,188
79,961
11,098
3,979
$95,038
Suppliers
We currently outsource certain functions to third parties, including the manufacture of all or
substantially all of our new MOCVD systems, Data Storage systems and ion sources. We primarily rely
on several suppliers for the manufacturing of these systems. We plan to maintain some level of internal
manufacturing capability for these systems. The failure of our present suppliers to meet their
contractual obligations under our supply arrangements and our inability to make alternative
arrangements or resume the manufacture of these systems ourselves could have a material adverse
effect on our revenues, profitability, cash flows and relationships with our customers.
In addition, certain of the components and sub-assemblies included in our products are obtained from
a single source or a limited group of suppliers. Our inability to develop alternative sources, if necessary,
could result in a prolonged interruption in supply or a significant increase in the price of one or more
components, which could adversely affect our operating results.
Purchase Commitments
As of December 31, 2012, we had purchase commitments totaling $62.6 million all of which come due
within one year.
Lines of Credit and Guarantees
As of December 31, 2012, we had bank guarantees outstanding of $15.1 million, which were partially
collateralized by $2.0 million in cash that is therefore restricted from use. We had outstanding letters of
credit of $0.9 million as of December 31, 2012. We also had $30.5 million of unused lines of credit and
bank guarantees available to draw upon if needed.
F-48
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
11. Foreign Operations, Geographic Area and Product Segment Information
Net sales which are attributed to the geographic location in which the customer facility is located and
long-lived tangible assets related to operations in the United States and other foreign countries as of
and for the years ended December 31, 2012, 2011 and 2010 are as follows (in thousands):
Net Sales to Unaffiliated
Customers
2012
2011
2010
United States(1) . . . . . . . . . . . . . . . . .
Europe, Middle East and Africa(1) . . .
Asia Pacific(1) . . . . . . . . . . . . . . . . . .
Long-Lived Tangible Assets
2012
2011
2010
$ 83,317
41,708
390,995
$100,635
57,617
820,883
$ 92,646
92,112
746,134
$74,497
36
23,769
$67,788
203
20,417
$41,072
274
974
$516,020
$979,135
$930,892
$98,302
$88,408
$42,320
(1) For the year ended December 31, 2012, net sales to customers in China and Taiwan were 42.0%
and 11.4% of total net sales, respectively. For the year ended December 31, 2011, net sales to
customers in China were 66.4% of total net sales. For the year ended December 31, 2010, net sales
to customers in South Korea, China and Taiwan were 32.3%, 28.7% and 10.9% of total net sales,
respectively. No other country in Europe, Middle East, and Africa (‘‘EMEA’’) and Asia Pacific
(‘‘APAC’’) accounted for more than 10% of our net sales for the years presented. A minimal
amount, less than 1%, of sales included within the United States caption above have been derived
from other regions within the Americas.
We have four identified reporting units that we aggregate into two reportable segments: the VIBE and
Mechanical reporting units which are reported in our Data Storage segment; and the MOCVD and
MBE reporting units are reported in our LED and Solar segment. We manage the business, review
operating results and assess performance, as well as allocate resources, based upon our reporting units
that reflect the market focus of each business. Our LED & Solar segment consists of metal organic
chemical vapor deposition (‘‘MOCVD’’) systems, molecular beam epitaxy (‘‘MBE’’) systems, thermal
deposition sources and other types of deposition systems. These systems are primarily sold to customers
in the LED and solar industries, as well as to scientific research customers. This segment has product
development and marketing sites in Somerset, New Jersey, Poughkeepsie, New York, and St. Paul,
Minnesota. During 2011 we discontinued our CIGS solar systems business, located in Tewksbury,
Massachusetts and Clifton Park, New York. Our Data Storage segment consists of the ion beam etch,
ion beam deposition, diamond-like carbon, physical vapor deposition, and dicing and slicing products
sold primarily to customers in the data storage industry. This segment has product development and
marketing sites in Plainview, New York, Ft. Collins, Colorado and Camarillo, California.
We evaluate the performance of our reportable segments based on income (loss) from operations
before interest, income taxes, amortization and certain items (‘‘segment profit (loss)’’), which is the
primary indicator used to plan and forecast future periods. The presentation of this financial measure
facilitates meaningful comparison with prior periods, as management believes segment profit (loss)
reports baseline performance and thus provides useful information. Certain items include restructuring
expenses, asset impairment charges, inventory write-offs, equity-based compensation expense and other
non-recurring items. The accounting policies of the reportable segments are the same as those
described in the summary of critical accounting policies.
F-49
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
11. Foreign Operations, Geographic Area and Product Segment Information (Continued)
The following tables present certain data pertaining to our reportable product segments and a
reconciliation of segment profit (loss) to income (loss) from continuing operations, before income taxes
for the years ended December 31, 2012, 2011 and 2010, and goodwill and total assets as of
December 31, 2012 and 2011 (in thousands):
Unallocated
Corporate
Amount
LED & Solar
Data
Storage
Year ended December 31, 2012
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$363,181
$152,839
$
Segment profit (loss) . . . .
Interest income, net . . . . .
Amortization . . . . . . . . . .
Equity-based compensation
Restructuring . . . . . . . . . .
Asset impairment charge .
Other . . . . . . . . . . . . . . .
$ 41,603
—
(3,586)
(5,400)
(1,233)
—
—
$ 25,414
—
(1,322)
(1,920)
(2,521)
(1,335)
(976)
$ (4,919)
974
—
(6,534)
(59)
—
—
$ 62,098
974
(4,908)
(13,854)
(3,813)
(1,335)
(976)
Income (loss) from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 31,384
$ 17,340
$(10,538)
$ 38,186
Year ended December 31, 2011
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$827,797
$151,338
$
$979,135
Segment profit (loss) . . . . . . . .
Interest expense, net . . . . . . . .
Amortization . . . . . . . . . . . . . .
Equity-based compensation . . . .
Restructuring . . . . . . . . . . . . . .
Asset impairment charge . . . . .
Other . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt .
$267,059
—
(3,227)
(3,473)
(204)
(584)
(758)
—
$ 38,358
—
(1,424)
(1,458)
(12)
—
—
—
$ (8,987)
(824)
(83)
(7,876)
(1,072)
—
—
(3,349)
$296,430
(824)
(4,734)
(12,807)
(1,288)
(584)
(758)
(3,349)
Income (loss) from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$258,813
$ 35,464
$(22,191)
$272,086
Year ended December 31, 2010
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$795,565
$135,327
$
$930,892
Segment profit (loss) . . . .
Interest, net . . . . . . . . . . .
Amortization . . . . . . . . . .
Equity-based compensation
Other . . . . . . . . . . . . . . .
$300,311
—
(1,948)
(1,764)
—
$ 33,910
—
(1,522)
(1,140)
179
$(18,675)
(6,572)
(233)
(5,865)
—
$315,546
(6,572)
(3,703)
(8,769)
179
$296,599
$ 31,427
$(31,345)
$296,681
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Income (loss) from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-50
—
—
—
Total
$516,020
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
11. Foreign Operations, Geographic Area and Product Segment Information (Continued)
LED & Solar
Data Storage
Unallocated
Corporate
Amount
As of December 31, 2012
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 55,828
$276,352
$
—
$38,664
$
—
$622,288
$ 55,828
$937,304
As of December 31, 2011
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 55,828
$319,457
$
—
$57,203
$
—
$559,403
$ 55,828
$936,063
Total
Corporate total assets are comprised principally of cash and cash equivalents, short-term investments
and restricted cash as of December 31, 2012 and 2011.
Other Segment Data (in thousands):
Year ended December 31,
2012
2011
2010
Depreciation and amortization expense:
LED & Solar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,020
3,008
1,164
$ 8,320
3,245
1,327
$ 5,506
3,581
1,702
Total depreciation and amortization expense . . . . . . . . . . . . . . . . . . . .
$16,192
$12,892
$10,789
assets:
..................................
..................................
..................................
$20,279
3,341
1,374
$56,141
2,703
1,520
$ 8,086
572
2,066
Total expenditures for long-lived assets . . . . . . . . . . . . . . . . . . . . . . . .
$24,994
$60,364
$10,724
Expenditures for long-lived
LED & Solar . . . . . . . .
Data Storage . . . . . . . .
Unallocated Corporate .
12. Derivative Financial Instruments
We use derivative financial instruments to minimize the impact of foreign exchange rate changes on
earnings and cash flows. In the normal course of business, our operations are exposed to fluctuations in
foreign exchange rates. In order to reduce the effect of fluctuating foreign currencies on short-term
foreign currency-denominated intercompany transactions and other known foreign currency exposures,
we enter into monthly forward contracts. We do not use derivative financial instruments for trading or
speculative purposes. Our forward contracts are not expected to subject us to material risks due to
exchange rate movements because gains and losses on these contracts are intended to offset exchange
gains and losses on the underlying assets and liabilities. The forward contracts are marked-to-market
through earnings. We conduct our derivative transactions with highly rated financial institutions in an
effort to mitigate any material counterparty risk.
The aggregate foreign currency exchange (loss) gain included in determining consolidated results of
operations was approximately $(0.5) million, $(1.0) million and $1.3 million in 2012, 2011 and 2010,
respectively. Included in the aggregate foreign currency exchange (loss) gain were gains relating to
F-51
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
12. Derivative Financial Instruments (Continued)
foreign exchange forward contracts of $0.3 million, $0.5 million and $0.1 million in 2012, 2011 and
2010, respectively. These amounts were recognized and are included in other, net in the accompanying
Consolidated Statements of Income.
As of December 31, 2012 and 2011, the notional amount of such contracts outstanding was
approximately $9.6 million and $3.6 million, respectively. The fair value of the outstanding contracts as
of December 31, 2012 and 2011, was $0.2 million and $0.0 million, respectively. The fair value of the
outstanding contracts is included as a component of Prepaid expenses and other current assets. These
contracts were valued using market quotes in the secondary market for similar instruments (fair value
Level 2, See Note 4. Fair Value Measurements).
The weighted average notional amount of derivative contracts outstanding during the year ended
December 31, 2012 and 2011 was approximately $3.5 million and $10.3 million, respectively.
13. Defined Contribution Benefit Plan
We maintain a defined contribution benefit plan under Section 401(k) of the Internal Revenue Code.
Almost all of our domestic full-time employees are eligible to participate in this plan. Under the plan
during 2011, we provided matching contributions of fifty cents for every dollar employees contribute up
to a maximum of $3,000. During 2012, we provided matching contributions of fifty cents for every
dollar employees contribute, up to the lesser of 3% of the employee’s eligible compensation or $7,500.
During 2013, we will provide matching contributions of fifty cents for every dollar employees
contribute, up to the lesser of 3% of the employee’s eligible compensation or $7,650.Generally, the
plan calls for vesting of Company contributions over the initial five years of a participant’s employment.
We maintain a similar type of contribution plan at one of our foreign subsidiaries. Our contributions to
these plans in 2012, 2011 and 2010 were $2.5 million, $2.1 million and $1.7 million, respectively.
F-52
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
14. Selected Quarterly Financial Information (unaudited)
The following table presents selected unaudited financial data for each quarter of fiscal 2012 and 2011.
Consistent with prior years, we report interim quarters, other than fourth quarters which always end on
December 31, on a 13-week basis ending on the last Sunday within such period. The interim quarter
ends are determined at the beginning of each year based on the 13-week quarters. The 2012 interim
quarter ends were April 1, July 1 and September 30. The 2011 interim quarter ends were April 3,
July 3 and October 2. For ease of reference, we report these interim quarter ends as March 31, June 30
and September 30 in our interim condensed consolidated financial statements.
Although unaudited, this information has been prepared on a basis consistent with our audited
Consolidated Financial Statements and, in the opinion of our management, reflects all adjustments
(consisting only of normal recurring adjustments) that we consider necessary for a fair presentation of
this information in accordance with accounting principles generally accepted in the United States. Such
quarterly results are not necessarily indicative of future results of operations.
(in thousands, except per
share data)
Fiscal 2012 (unaudited)
Q2
Q3
Q1
Q4
Q1
Fiscal 2011 (unaudited)
Q2
Q3
Q4
Net sales . . . . . . . . . . . $139,909 $136,547 $132,715 $106,849 $254,676 $264,815 $267,959 $191,685
Gross profit . . . . . . . . .
65,268
61,254
49,884
38,727 130,963 135,349 124,934
83,088
Income (loss) from
continuing operations,
net of income taxes . .
16,462
11,011
7,698
(8,642) 57,979
56,318
52,617
23,588
(Loss) income from
discontinued
operations, net of
income taxes . . . . . . .
(50)
807
4,055
(413) (5,337) (37,112) (16,754) (3,312)
Net income (loss) . . . . . $ 16,412 $ 11,818 $ 11,753 $ (9,055) $ 52,642 $ 19,206 $ 35,863 $ 20,276
Income (loss) per
common share:
Basic:
Continuing operations $
Discontinued
operations . . . . . . .
Income (loss) . . . . . . $
Diluted :
Continuing operations $
Discontinued
operations . . . . . . .
Income (loss) . . . . . . $
Weighted average shares
outstanding:
Basic . . . . . . . . . . . .
Diluted . . . . . . . . . . .
0.43 $
0.29 $
0.20 $
(0.22) $
0.02
0.10
(0.01)
0.43 $
0.31 $
0.30 $
(0.23) $
1.32 $
0.47 $
0.91 $
0.53
0.42 $
0.28 $
0.20 $
(0.22) $
1.36 $
1.31 $
1.31 $
0.61
0.02
0.10
(0.01)
0.30 $
0.30 $
(0.23) $
—
—
0.42 $
38,261
38,863
38,370
38,988
38,577
39,169
F-53
38,698
38,698
1.46 $
(0.14)
(0.12)
1.24 $
39,842
42,531
1.37 $
(0.90)
(0.86)
0.45 $
40,998
43,002
1.34 $
(0.43)
(0.41)
0.90 $
39,335
40,069
0.62
(0.09)
(0.09)
0.52
38,212
38,771
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
14. Selected Quarterly Financial Information (unaudited) (Continued)
A variety of factors influence the level of our net sales in a particular quarter including economic
conditions in the LED, solar, data storage and semiconductor industries, the timing of significant
orders, shipment delays, specific feature requests by customers, the introduction of new products by us
and our competitors, production and quality problems, changes in material costs, disruption in sources
of supply, seasonal patterns of capital spending by customers, interpretation and application of
accounting principles, and other factors, many of which are beyond our control. In addition, we derive
a substantial portion of our revenues from the sale of products with a selling price of up to
$8.0 million. As a result, the timing of recognition of revenue from a single transaction could have a
significant impact on our net sales and operating results in any given quarter.
CIGS Solar Systems Business Disposal
On July 28, 2011, we announced a plan to discontinue our CIGS solar systems business. The action,
which was completed on September 27, 2011 and impacted approximately 80 employees, was in
response to the dramatically reduced cost of mainstream solar technologies driven by significant
reductions in prices, large industry investment, a lower than expected end market acceptance for CIGS
technology and technical barriers in scaling CIGS. This business was previously included as part of our
LED & Solar segment.
Accordingly, the results of operations for the CIGS solar systems business have been excluded from
continuing operations in the foregoing selected quarterly financial information and disclosed separately
as discontinued operations. During the year ended December 31, 2011, total discontinued operations
include charges totaling $69.8 million ($50.7 million in the second quarter and $19.1 million in the third
quarter). These charges include an asset impairment charge totaling $6.2 million, a goodwill write-off of
$10.8 million, an inventory write-off totaling $27.0 million, charges to settle contracts totaling
$22.1 million, lease related charges totaling $1.4 million and personnel severance charges totaling
$2.3 million.
Metrology Divestiture
On August 15, 2010, we signed a definitive agreement to sell our Metrology business to Bruker
comprising our entire Metrology reporting segment for $229.4 million. Accordingly, Metrology’s
operating results are accounted for as discontinued operations in determining the consolidated results
of operations. The sale transaction closed on October 7, 2010, except for assets located in China due to
local restrictions. Total proceeds, which included a working capital adjustment of $1 million, totaled
$230.4 million of which $7.2 million relates to the assets in China. As part of our agreement with
Bruker, $22.9 million of proceeds was held in escrow and was restricted from use for one year
following the closing date of the transaction to secure certain specified losses arising out of breaches of
representations, warranties and covenants we made in the stock purchase agreement and related
documents. The restriction relating to the escrowed proceeds was released on October 6, 2011. As part
of the sale we incurred transaction costs, which consisted of investment banking fees and legal fees,
totaling $5.2 million. During the fourth quarter of 2010, we recognized a pre-tax gain on disposal of
$156.3 million and a pre-tax deferred gain of $5.4 million related to the assets in China. We recognized
into income the pre-tax deferred gain of $5.4 million during the third quarter of 2012 related to the
completion of the sale of the assets in China to Bruker.
F-54
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
14. Selected Quarterly Financial Information (unaudited) (Continued)
Other Quarterly Items
During 2012, we took measures to improve profitability, including a reduction in discretionary expenses,
realignment of our senior management team and consolidation of certain sales, business and
administrative functions. As a result of these actions, we recorded a $3.8 million restructuring charge
consisting of $3.0 million in personnel severance and related costs, $0.4 million in equity compensation
and related costs and $0.4 million in other severance costs resulting from a headcount reduction of 52
employees. We recorded $2.0 million of these charges in the third quarter of 2012 and $1.8 million of
these charges in the fourth quarter of 2012 with the balance recorded in the first quarter of 2012.
During the fourth quarter of 2011, we recognized a restructuring charge of $1.3 million for personnel
severance related to a company-wide reorganization. We also recognized an asset impairment charge of
$0.6 million for property and equipment and $0.8 million inventory write-off charged to cost of sales
related to the discontinuance of a certain product line in our LED & Solar segment.
During the third quarter of 2011 there was overstatement in our discontinued operations tax benefit
totaling $3.4 million. We corrected this error in the discontinued operations income tax provision in the
fourth quarter of 2011 for the same amount, representing the amount not previously recorded in the
third quarter of 2011. We do not believe that this difference was material to our results of operations
for the third and fourth quarter of 2011.
As a result of the delay in filing our Form 10-Q for September 30, 2012 (‘‘Q3 10-Q’’), we were
required to evaluate the impact of events and circumstances occurring through the date of the filing of
the Q3 10-Q. After considering declines in systems shipments and parts usage occurring though the
date of the filing of the Q3 10-Q, we determined that an increase in our reserve for slow moving and
obsolete inventory was warranted and resulted in us recording a total charge of $7.2 million to cost of
sales in the third quarter of 2012. We anticipate that the evaluation will also result in relatively lower
provisions for inventory reserves over the first three quarters of 2013. We recorded a $1.8 million
charge to cost of sales for inventory write downs in the fourth quarter of 2012 that related to a
terminated program. The effect on the comparative statements above was to reduce gross profit for
September 30, 2012 compared to all other periods presented.
Out of Period Adjustment
As a result of our accounting review we identified errors in the consolidated financial statements
related to prior periods. The errors were primarily attributable to the misapplication of U.S. GAAP for
recognizing revenue and related costs under multiple element arrangements and accounting for
warranties. We assessed the materiality of these errors, both quantitatively and qualitatively, and
concluded that these errors were not material, individually or in the aggregate, to our consolidated
financial statements in this or any other prior periods. During the course of our review, we identified
net cumulative errors which overstated cumulative net income from continuing operations through
December 31, 2011 by $0.6 million and net cumulative errors that understated net income from
continuing operations in the six month period ended June 30, 2012 by $1.1 million. As a result, in the
third quarter of 2012, we recorded adjustments to correct all prior periods resulting in an increase in
income from continuing operations of $0.5 million.
F-55
Veeco Instruments Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 2012
15. Subsequent Events
Notice of potential de-listing: During our internal control evaluation and accounting review, we were
unable to timely file our periodic statements with the SEC and, as of the date of this report, have yet
to become current with all our required filings. We have been notified by The NASDAQ Stock Market
that our common stock listing will be suspended if we have not filed all of our outstanding periodic
reports with the SEC on or before November 4, 2013. If our stock is delisted, then it will no longer be
traded on the NASDAQ Global Select Market, however, it would continue to trade in the
over-the-counter market, which may have an adverse effect on the trading price of our stock.
Veeco and certain other parties were named as defendants in a lawsuit filed on April 25, 2013 in the
Superior Court of California, County of Sonoma. The plaintiff in the lawsuit, Patrick Colbus, seeks
unspecified damages and asserts claims that he suffered burns and other injuries while he was cleaning
a molecular beam epitaxy system alleged to have been manufactured by Veeco. The lawsuit alleges,
among other things, that the molecular beam epitaxy system was defective and that Veeco failed to
adequately warn of the potential risks of the system. Veeco believes this lawsuit is without merit and
intends to defend vigorously against the claims and Veeco maintains insurance which may apply to this
matter. Because the Company believes that this potential loss is not probable or estimable, it has not
recorded any reserves related to this legal matter.
Acquisition of Synos Technology, Inc. (‘‘Synos’’): On October 1, 2013, we acquired Synos, which designs
and manufactures Fast Array Scanning Atomic Layer Deposition systems (‘‘ALD’’) that are enabling
the production of flexible organic light-emitting diode (‘‘OLED’’) displays for mobile devices. The
initial purchase price is $70 million. The agreement also includes an earn-out feature that would
require an additional payment of up to $115 million if future performance milestones are achieved
prior to December 31, 2014. With the earn-out feature, the total maximum potential purchase price is
$185 million. Synos is headquartered in Fremont, California and has approximately 50 employees.
Preliminary purchase accounting estimates for Synos are not yet available.
F-56
Schedule II—Valuation and Qualifying Accounts (in thousands)
COL. A
Description
Deducted from asset accounts:
Year ended December 31, 2012
Allowance for doubtful accounts . . . . . . .
Valuation allowance in net deferred tax
assets . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2011
Allowance for doubtful accounts . . . . . . .
Valuation allowance in net deferred tax
assets . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2010
Allowance for doubtful accounts . . . . . . .
Valuation allowance in net deferred tax
assets . . . . . . . . . . . . . . . . . . . . . . . . .
COL. B
Balance at
Beginning
of Period
$
COL. C
Additions
Charged to Charged to
Costs and
Other
Expenses
Accounts
468
$ 198
1,765
2,943
$ 2,233
$3,141
$
—
$
$
$
—
512
1,644
—
$
—
COL. D
COL. E
Deductions
Balance at
End of
Period
$
(174)
$ 492
—
4,708
$
(174)
$5,200
$
(44)
$ 468
121
1,765
—
—
—
$ 2,156
$
—
$
—
$
77
$2,233
$
$
40
$
34
$
—
$ 512
438
84,723
$85,161
S-1
$
—
(2,663)
(80,416)
1,644
40
$(2,629)
$(80,416)
$2,156
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